Investor Relations | IR Events | Performance Briefing

[ 1st Quarter of fiscal 2015 Performance Briefing ]Q&A

Q1. Please give me a breakdown by business of the improvement in earnings from passive components between 4Q and 1Q.
A1. I will explain the changes that occurred between 4Q and 1Q. First, in 4Q we booked restructuring charges of ¥1.5 billion, and if those are excluded, earnings increased by around ¥6 billion between 4Q and 1Q. A big improvement was seen in inductive devices. These accounted for about a third of the total increase. High-frequency devices also saw a big improvement, accounting for another third of the total increase. The remainder of the increase was mainly from ceramic capacitors and piezoelectric material products.
Q2. Inventory increased by ¥3.2 billion between the end of March 2014 and the end of June 2015, but please give me a breakdown by business of the changes.
A2. The bulk of the inventory increase between the end of March and the end of June occurred in the rechargeable battery business. Inventories also changed slightly in other businesses, but no other business saw a major change. In the case of capacitors, inductive devices, and high-frequency components, capacity utilization and productivity climbed, but sales were strong, so inventories declined slightly.
Q3. The explanatory material we’ve received forecasts an increase in sales of passive components between 1Q and 2Q of 7-8%, but please break this forecast down into capacitors, inductive devices, and high-frequency products and explain how you think sales of each are going to change.
A3. We’re predicting sales of capacitor and inductive devices to rise by less than 7-8% and sales of other passive components to rise by more than 7-8%. Sales of capacitors to the smartphone sector, mainly for base stations in China, and for automobiles have been increasing, while sales of applied products such as three-terminal capacitors have also been rising. Inductors for automobiles are selling extremely well. If HEVs and EVs continue to proliferate, the number of components will naturally increase, and to improve safety, use of ECUs will expand, which will lead to a rise in the number of electronic components used. Coils are also doing especially well, with orders for metal coils from customers in China, South Korea, and North America on the rise, so we expect sales volume to increase from 1Q onwards. We also expect sales of high-frequency components to rise between 1Q and 2Q, mainly because we are predicting an increase in orders for discrete products.
Q4. Although you haven’t changed your forecast of ¥57 billion in operating income for the full year, at the performance briefing for fiscal 2015 held in April we were told that over 40% of the ¥57 billion would be earned in the first half, but please tell me, in light of the 1Q results, if there will any change in this first-half forecast.
A4. Regarding the first-half forecast, given that passive components are selling well, and that sales of batteries, which were lower than expected in 1Q, will significantly recover from 2Q onwards, we currently expect around 45% of the ¥57 billion to be earned in the first half.
Q5. I have a question about passive components. Since last fiscal year you’ve been restructuring the business, and earnings have improved, but please tell me how management, looking at these 1Q results, views this improvement. Do you feel that the improvement has been enough, or do you feel that the business is still weak and that more action needs to be taken in some areas? I think Chinese smartphones have probably made a considerable contribution in this 1Q, but I also think that market conditions may change somewhat in the future, so please tell me what management thinks about strengthening the passive components business.
A5. We carried out a major restructuring of the capacitor business two years ago, getting it back into the black last year, and since then it has continued improving. Recently, orders relating to automobiles and Chinese smartphones have been increasing, and profit margins have also been rising, so we’re seeing real improvement there. To improve things further, I think we need to develop the applied products business, particularly applications. With regard to inductors, too, we’ve increased the number of metal products, and the product line-up has been steadily expanding. We have also been restructuring the business for some time, by consolidating production centers, for example, and I feel that we’re gradually putting in place a structure that will deliver results if we get orders. Regarding high-frequency products, modular products, which had presented a challenge, are beginning to perform as well as our competitive discrete products. For example, we have received new approvals from customers in South Korea and North America. I also think the improvement in the high-frequency components business can continue to make a major contribution going forward.
Q6. Please tell me about what you’re doing to improve the high-frequency components business on a region by region basis. With regard to China, compared with the time of the full-year performance briefing in April, I get the impression that you’re feeling a bit more positive, so please tell me how confident you are in the action you’re taking there. Also, regarding South Korea, please tell me whether you think the new module business is going to expand in the future.
A6. Regarding China, sales of discrete products are firm at present. I think that this success is due to an increase in the number of reference design approvals and the assignment of larger numbers of field engineers and other personnel to steadily reap rewards. With regard to South Korea, we have already received approvals for several models, and have also obtained approval for two new models, so I think that as soon as the customers commence production, the volume shipped will rise. South Korea is also home to our number-two major customer, and we sell that customer not only high-frequency components, but also inductors, so we have received an extremely large share of their business for some time. Recently, volume has also been increasing, and in terms of absolute volume, orders received from this customer are almost on a par with those received from our number-one major customer, which I think is an extremely favorable situation.
Q7. Regarding orders received for passive components, particularly from smartphone manufacturers in China, please tell me about the situation in 1Q and the outlook for 2Q.
A7. In the Chinese market, demand for components for base stations will expand from July, with smartphone manufacturers commencing production simultaneously, so orders for our components have been rising faster than we anticipated. We also see orders holding firm in 2Q.
Q8. You have raised your volume forecast for the HDD market, so please give me an update on your expectations concerning TDK’s share of that market and numbers of heads this fiscal year.
A8. We think the average number of heads per HDD will be about 3.18. As for market share, given that the near-line market is not growing as rapidly as we expected, and that the best-performing market segment will be HDDs for video game consoles, which contain relatively few heads, we are predicting a market share of around 26% this fiscal year.
Q9. It seems as though profits from film application products dropped a bit more than you’d expect given the change in sales between 4Q and 1Q. Please tell me whether there was any special reason for this. Also, please tell me whether profits from film application products will actually increase from July, and let me confirm that you are taking steps to attract new customers.
A9. The biggest reason for the profit decline between 4Q and 1Q was the drop in sales, though R&D expenses were also a minor factor. From 2Q onwards we expect sales to increase and profitability to return to normal. We have also been working hard for some time to expand our customer base beyond our major customers in North America, so we also predict the number of customers to increase from 2Q.
Q10. On the 2Q sales guidance page, you say that sales of film application products will increase by “at least 40%” compared with 1Q. Please tell me the background to this forecast.
A10. With film application products (rechargeable batteries), the most important thing is that the number of major customers in North America increases, but we’re also seeing sales to China/Taiwan, more sales to current customers, and sales to new customers. This trend will continue from 2Q onwards, so we expect our dependence on sales to major customers to decline slightly this fiscal year as we expand our customer portfolio.