Investor Relations | IR Events | Performance Briefing

[ 3rd Quarter of fiscal 2016 Performance Briefing ]Q&A

Q1. This is a question about the recently announced joint venture established with Qualcomm Incorporated. You have an option to sell your equity once 30 months have elapsed from the establishment of the joint venture after concluding the agreement. We understand that if you exercised that option you would have a cash inflow of around US$3 billion in total. Could you give an overview of the timing of this cash inflow? Also, could you tell us what you can at this point about how the cash will be used.
A1. With regard to the timing of the US$3 billion cash inflow, first of all, at the time when the agreement is concluded, which is planned for about one year from now, we expect to receive about 51% of the US$3 billion in cash. We will receive the remainder as we exercise the options. Strictly speaking, it is not only the amount corresponding to 51% of the US$3 billion that we will receive at the conclusion of the agreement, but that is the general picture. With regard to how we will use the cash, as we explained when we announced the deal with Qualcomm Incorporated the other day, we are currently working on a long-term growth strategy centered on sensors, energy units, next-generation electronic components (thin-film components, integrated components, SESUBs, etc.). We plan to use the cash for these multiple strategic measures, for increasing assets and for making investments in rationalization, as well as for M&As and other activities to realize further growth going forward.
Q2. At the point of concluding the agreement, you will receive 51% of the US$ 3 billion. Could you give an indication of the impact on your operating income for the next fiscal year?
A2. It’s difficult to provide accurate figures, but in terms of accounting treatment, the difference between the US$3 billion and the book value of the assets that are subject to it will be booked as operating income at the time of concluding the agreement.
Q3. In the smartphone market, I believe you have lowered your fourth quarter (January-March) guidance for both South Korean and North American manufacturers compared to your previous estimates. I think it is probably Chinese manufacturers that are performing strongly now. From the perspective of an electronic components manufacturer, is the mix of passive components and rechargeable batteries likely to deteriorate, and will this have an impact on profit margins?
A3. As you have pointed out, our Chinese customers are performing strongly. Therefore, their performance in passive components and rechargeable batteries may be stronger in the fourth quarter, and the mix could change slightly. However, we do not expect to see any major change in the earnings structure resulting from changes in the customer mix.
Q4. High-frequency components that will not be transferred to the joint venture with Qualcomm Incorporated include Wi-Fi modules and discrete products. Could you talk about the outlook for profitability for discrete products?
A4. The discrete products that will remain with us are ceramic filters. Their profitability is of a comparable level with that of the discrete products that will be transferred. They are also making gains in production efficiency and market share. We are also making progress with development to achieve higher frequencies, so they should be able to continue returning a profit going forward.
Q5. In ceramic filters, as the telecommunication protocols change and we move into high-frequency bandwidths with 5G and so forth, can we expect demand to expand in the future?
A5. Yes, I think we can expect that.
Q6. The newspapers report that Toshiba will be significantly reducing its HDD business. Could you confirm the situation for us?
A6. With regard to the news about Toshiba, I won’t make any comment about other companies. Toshiba is one of our important customers, and we will continue as before to assist them to the best of our ability.
Q7. Recently you announced the acquisition of Hutchinson Technology Incorporated. Now TDK (Magnecomp Precision Technology Public Co., Ltd.) has expanded its global share in the HDD suspension business to more than 60% in total. Could you tell us the objective for acquiring Hutchinson Technology?
A7. As you know, within the HDD market, we are expecting the imminent emergence of a market for heat-assisted heads. For HDD heads that use heat-assisted recording technology, we believe suspension technologies and other materials will play an even more important role. So the main objective for the acquisition was to secure such technologies in-house. In addition to the technology aspect, we also expect to realize production efficiency gains together with cost reductions through mass production.
Q8. With regard to rechargeable batteries, is the share of sales increasing for applications other than smartphones, such as drones?
A8. Looking at the ratio for overall sales of rechargeable batteries, sales for applications such as smartphones, tablets, and laptops are growing steadily. So currently the share of sales for other applications is still very small. However, sales are increasing steadily and we believe the share will grow going forward.
Q9. Rechargeable battery sales are growing steadily. Looking ahead, could you tell us about any promising areas for application other than the consumer sector?
A9. As you are aware, we are currently focusing on the consumer sector, and we expect the markets in this sector to continue expanding next fiscal year and onwards. In applications outside of the consumer sector, we are naturally looking at EVs for the long term, but before that, we expect to see demand for industrial equipment, namely robots and AGVs (Auto Guided Vehicles) that are used as automated vehicles for transporting goods inside plants.