Investor Relations

[ 2nd Quarter of fiscal 2017 Performance Briefing ]Q&A

Q1. Do you still intend to conduct the carve-out of the high-frequency components business to the joint venture with Qualcomm Incorporated in the fourth quarter as initially planned?
A1. Regarding the schedule for the joint venture with Qualcomm, the procedures are moving along smoothly, and at this stage we expect to be able to execute it as initially planned.
Q2. There is some concern in the markets that the carve-out of the high-frequency components business will result in lower income in the next fiscal year, excluding temporary gains. How do you see it having an impact on next fiscal years’ income results?
A2. The high-frequency components business that we are going to carve out has recorded growth in profits for the first six months of the current fiscal year as well. On the other hand, we are investing in fields that will grow in the future, including strengthening existing businesses and M&As. In particular, we expect to be able to achieve significant growth in businesses related to energy units and sensors going forward, and we believe we will be able to realize growth that more than compensates for the gap caused by separation of the high-frequency components business. I plan to explain the specifics in more detail at the next company presentation.
Q3. Qualcomm has announced its acquisition of NXP Semiconductors N.V. and is expected to expand its business scope. What kind of opportunities do you anticipate in your future collaboration with Qualcomm?
A3. We intend to grow our business for the automotive market going forward. Qualcomm has technology partnerships in a wide range of fields and we see its major reorientation towards the automotive field in addition to its existing IT field as an extremely positive development. Moreover, NXP Semiconductors acquired Freescale Semiconductor, Inc. last year, and originally deals in magnetic sensors, so this deal will no doubt expand new business opportunities for us, including technological collaboration. We intend to have a thorough discussion with Qualcomm to see how much we can contribute to this market.
Q4. You are expected to benefit from a large inflow of cash in the joint venture with Qualcomm. Do you have any other core policy for using it, other than the strategy of continuing to execute M&As?
A4. Other than M&As, our policy is to use it for growth investments. This includes not only new businesses, but existing ones as well.
Q5. Could you give an update on the current status of the cooperation in business with Micronas Semiconductor Holding AG, which you acquired?
A5. We are already involved in quite close joint development with Micronas. We have started developing products combining their Hall effect sensor technology and ASIC development technology with our high precision sensors, mainly TMR sensors. In particular, in the automotive market, there is a demand for many products that not just high precision, but also have failsafe functionality. We are addressing this need by steadily planning and developing products that can realize failsafe functions by combining TDK’s technologies with Micronas’s different technologies. In addition, we are advancing other joint projects with Micronas outside of the area of failsafe products, such as electric current sensors. For example, we are also developing application products such as using a Hall element for large electric currents and a TMR element for tiny currents to enable detection of a wide range of current sizes with a single sensor. Furthermore, we have started activities for selling Micronas’s products through TDK’s sales channels. We are moving forward fairly rapidly in our collaboration with Micronas.
Q6. What is the projection for earnings improvement at Micronas in the fiscal year ending March 31, 2018?
A6. Micronas’s business is mainly focused on the automotive market. We do not therefore expect a sudden surge in sales through the fiscal year ending March 31, 2018; if anything, the impact of costs is larger. As I mentioned before, we are strengthening our collaboration with TDK’s TMR sensors, ASIC, and so forth, and we expect these synergies to come into play more from the fiscal 2018 and onward.
Q7. Regarding Hutchinson Technology Incorporated, which you acquired, what is your current projection for the amount of impact on earnings in the second half?
A7. It is difficult to give concrete figures, but up until recently Hutchinson’s earnings had been a loss of around 1 billion yen per half-year. We are not expecting a dramatic improvement in the second half, so basically those losses are expected to continue. In addition, we also expect to record expenses for increasing efficiency after the acquisition as well as certain amortization expenses on the acquisition price.
Q8. Since your appointment as president, you have presumably looked at various internal aspects of the company and decided to take some different initiatives from previously. Could you tell us what you have in mind?
A8. I have two. The first is “dynamic attack.” We will move ahead proactively, including M&As. With regard to magnetic sensors, I believe we have already made our move to a certain extent, mainly with the acquisition of Micronas. But I feel that there is still room for expansion, and we will continue to execute our policy in this area. We can also expect to see significant growth in energy units. I plan to continue implementing a proactive strategy based on these two fields. The second area I am thinking of is something that hasn’t really been expressed by TDK over these last few years. It is a “static attack” to driving business. By this I mean accelerating business, shortening our business cycle and so forth. We plan to develop specific initiatives along these lines internally going forward. The reason for focusing on accelerating our business is that the speed with which we can launch new products, so-called “time-to-market,” has a significant impact on our earning power. I have developed an intuitive understanding of these factors from my many years of involvement in the HDD heads business. We operate in a world where second-comers are not valued, so it is vital to be first-to-market if we are to obtain the prices and orders that we want. I want to impress this point on everyone throughout the Company. Another goal I have is to improve operational efficiency by shortening our cycle, primarily in production, and also by improving asset efficiency.
Q9. Right now as you are transitioning to an internal company system and localizing your strategy formulation and business expansion, how do you see your role as president at the corporate level?
A9. My role is divided into two main parts. The first is to set the direction for our strategies and make major decisions in a timely fashion as part of setting our overall course. If I don’t take a major role, including in our medium-term commitment, then our earnings will not grow. To that extent, I aim to make final decisions, mainly on M&As. The second part of my role is to consider the best balance between delegation of authority and matters of governance. I consider this to be one of the main tasks for me and my staff.
Q10. Regarding the reorganization of the Akita region, how will you move forward on this?
A10. First of all, we decided to merge subsidiaries and are going to operate through two companies: the newly established TDK Akita Corporation and the existing TDK Shonai Corporation. We have organized our structure by region, factory, and core technologies. For example, the Honjo region is positioned as the core technology area for multilayer technology, such as multilayer products centered on multilayer ceramic capacitors (MLCCs). In Nikaho City, we have established the Inakura Factory. This is positioned as a mother plant for mainly ferrite materials. In the Shonai area, we have focused on the wire winding method and on core technologies such as thin-film and plating. The Tsuruoka Higashi Factory that we acquired from Renesas Semiconductor Manufacturing Co., Ltd. will serve as a thin-film plant. This series of reorganizations is designed to increase our core technologies and product technologies, and to create new products on a shorter cycle. The Tsuruoka Higashi Factory is being refurbished, including the interior, and we aim to be ready to start full scale operations at our new factories in Honjo, Inakura, and Tsuruoka in the fiscal year ending March 31, 2018.
Q11. Would you say that this reorganization has been focused on technological capabilities for development of new products? Or has it been based on the cost structure including material flows? Or has it been both?
A11. Both. We expect to be able to reduce costs.
Q12. It seems that the bases for each product are becoming quite differentiated, with the battery business centered in China, Micronas and EPCOS in Europe, and then Japan. Is the Company’s management planning to have each global area focus on its own strengths? Or is it planning to develop technology through a tripolar structure?
A12. Our policy is to combine a part of strengthening our development in each area and a part of strengthening the company overall in an integrated way. Also, this is still in development, but we consider it better to have a structure where each area advances development in its original field of primary expertise, rather than having all R&D bases concentrated in Japan. Silicon Valley in the United States is the leading area in the fields of communications and the future of IoT, so TDK has established an R&D center in the San Jose area. We will develop this center in stages while conducting appropriate development for each application. On the other hand, we will create a development center in Shenzhen, which is China’s center of smartphone mass production, and use it as an antenna to lead product development. Again, in Europe we will conduct development of passive components and sensors centered on high-frequency products as before. In particular, Europe is the main area for sensors for automobiles. For materials development, mainly magnetic materials, and in the future, spintronics as the future vision for magnetic products, we intend to pursue further development in Japan. We are aiming for management in line with global market trends.
Q13. What is the future status and plan for introduction of thermal-assist technology?
A13. We consider that HDDs will continue to play an extremely important role in large-volume storage centered on nearline storage servers. We expect to see HDDs for servers with thermal assist recording heads begin shipping gradually from next year, mainly from the U.S. manufacturer with whom we have been conducting joint development. We expect to see their full-scale introduction from 2018 through 2019, and we will also be focusing on this as we advance our own development.
Q14. TDK’s sensitivity to foreign exchange fluctuations has changed and you now expect a movement of 1 yen versus the euro to have a 700 million yen impact. Could you explain what is happening here?
A14. The main factor is the impact of translating euro-based operations on consolidation, especially the high-frequency components business. Previously this hasn’t had much of an impact on our earnings, but now that the high-frequency components business has come to account for a larger portion of the entire company, the impact from translating the euro has increased.
Q15. What are your thoughts regarding the third-quarter sales projection for passive components?
A15. Including the impact of revised foreign exchange rate assumptions, we expect them to be basically level with second quarter sales overall.
Q16. What was the status of second quarter sales in China and North America respectively?
A16. In China, in addition to rechargeable batteries’ sales, we saw particularly strong sales for passive components. In North America, rechargeable batteries for smartphones sold briskly.