Investor Relations | IR Events | Performance Briefing

[ 2nd Quarter of fiscal 2016 Performance Briefing ]Q&A

Q1. TDK has reduced its HDD demand forecast. What is your outlook for HDD demand next fiscal year? How do you expect the HDD head shipment volume to change from the current fiscal year to the next fiscal year?
A1. We have reduced the HDD demand forecast for the current fiscal year, the year ending March 2016, to 463 million units. Next fiscal year, the year ending March 2017, we expect HDD demand to decrease by around 5% from the current fiscal year. We expect HDD head demand to remain mostly unchanged between around 1,550 million and 1,560 million units.
Q2. What should we expect TDK’s market share to be at that time?
A2. TDK should have a market share of around 23%.
Q3. At the beginning of this fiscal year, we were briefed on TDK’s mid-term policy, including its priority five businesses and new business. Please describe any products that offer strong prospects for sales or earnings growth next fiscal year.
A3. The sensor business is now our most promising business. TMR-based angle sensors and position sensors offer particularly strong prospects from the second half of next fiscal year. Moreover, thin-film components should also start to grow from next fiscal year.
Q4. So you haven’t made any major changes in your plans for next year in the high-frequency components business, including SAW filters, right?
A4. We intend to launch new SAW filter products. Plans also call for launching a new BAW filter product with thinner packaging.
Q5. What amount of one-time costs for magnets in the magnetic application products segment are included in your second quarter results?
A5. Our second quarter results include around ¥1.0 billion of one-time costs.
Q6. The demand situation in the HDD market has diverged from your outlook so far. In this climate, how will you go about restoring future HDD head earnings?
A6. Considering the market trend toward backing up large amounts of data, including Internet of Things (IoT) data, we believe that HDD demand will not drop precipitously, although it may decline in stages. In this environment, TDK intends to explore the possibilities of providing new services to and cooperating on joint development with HDD manufacturers under different frameworks than before. We are solving the initial issues that have affected the heat-assisted recording heads we are currently developing. We are now exploring the avenue of replicating TDK’s added value at HDD manufacturers through such means as providing advanced development technologies including heat-assist head technology and supplying assembly capabilities.
Q7. I have a question about rechargeable batteries. At the current rate of growth, I believe that sales should surpass ¥200 billion this fiscal year. Until now sales of rechargeable batteries have grown steadily for use in smartphones, tablets and notebook PCs. Several days ago, the Chinese government announced an outline of its latest Five-Year Plan. The plan positions batteries as a priority industry as China seeks to achieve growth while preserving the environment. I think this topic will attract considerable interest going forward. The strategic positioning of TDK’s battery business will probably enter an entirely different phase, perhaps in 3 or 5 years from now. In what direction will TDK drive growth in its battery business going forward?
A7. That is a very good question, one that will have a crucial bearing on our strategy for the battery business going forward. In the past, TDK had actually considered steering its battery business more to the automotive and industrial equipment fields. However, qualification of automotive batteries takes considerable time and requires the investment of substantial business resources. It would also entail a very large increase in our investment in production lines. TDK has hitherto specialized almost entirely in batteries for consumer fields, and has become fairly competitive in those fields. Although we will continue to pursue research into batteries for automotive and industrial equipment, our policy for the near term is to further strengthen our batteries in consumer fields so as to establish a dominant competitive edge in those fields.
Q8. In the process, I assume that TDK has been conducting R&D and making investments to take the next step. I believe that the industrial equipment market will also grow larger in around 2020. What is your view on the industrial equipment field?
A8. Because the industrial equipment field is a priority market for TDK, we must certainly remain engaged in this field. In addition to rechargeable batteries, TDK has an expansive range of passive components for industrial equipment, such as chargers, DC-DC converters, and aluminum electrolytic capacitors, as well as components related to energy management, such as wireless power transfer. Accordingly, TDK is able to integrate and sell all of these components as systems. As I said earlier, we will generate earnings by establishing a dominant competitive edge in batteries in consumer fields in tandem with exploring the next phase of batteries in the industrial equipment and other fields.
Q9. Page 14 of the presentation materials shows an image of the change in sales in the third quarter. Please provide a rough product-by-product breakdown of the factors behind the projected change in sales of passive components.
A9. Capacitor sales are expected to track the overall trend for passive components as a whole, and will thus remain mostly unchanged from sales in the second quarter. Sales of inductive devices are projected to increase by 2-3%. Sales of other passive components are expected to increase by around 2%.
Q10. I believe that earnings from other passive components improved from the first quarter to the second quarter. What factors contributed to the improved profitability in the second quarter? Do you expect this trend to continue in the third quarter?
A10. Productivity, yield and quality improved from the first quarter to the second quarter. As we reported earlier, we continue working to improve productivity by sending engineers in the HDD head business on assignment to other passive components. Given that there is still scope for further improvement, we will continue to increase yields so that other passive components can contribute to profits.
Q11. So there were no particular product mix changes that would have led to the improved profitability in the second quarter, right? Is that how you see the situation?
A11. We don’t think there were any notable product mix changes. We see this as being largely as planned.