Investor Relations | IR Events | Performance Briefing

[ 2nd Quarter of fiscal 2018 Performance Briefing ]Q&A

Q1. Mid- and high-voltage will become the major trend for MLCCs and aluminum electrolytic capacitors and film capacitors. TDK has developed high-voltage capacitors for powertrains, but does it contribute to improved profitability?
A1. As for MLCCs, we believe that TDK’s product lineup contributes to the recent shift towards electric vehicles. In addition, large-sized large-capacitance capacitors in which TDK excels, including on-board chargers, are used more widely and contribute to the improvement in profitability. However, in the long run, a shift to small-sized large-capacitance capacitors is unavoidable. With this in mind, we aim to further improve profitability by conducting investments in a timely manner.
As for aluminum electrolytic capacitors and film capacitors, there are Japanese and European standards for electric vehicle platforms, and as EPCOS products will be mounted on the platforms of European products, their future expansion is expected. We envision this will further contribute to profits.
Q2. The supply and demand balances for MLCCs continues to be tight. In the previous performance briefing, it was said that this would be tackled with an improved product mix. It is believed that the shift to electric vehicles will progress in the next fiscal year as well, and capacity of automotive application products will be insufficient. What is your plan for this?
A2. Currently, we are increasing production at a pace of approximately 10% every year, and have made investment over the last two years for production to increase by approximately 20%. We are proceeding with investment in the second half as well, and would like to deal with it in a timely manner going forward.
As for automotive application, customers demand high-quality and high-reliability products, and manufacturers who can supply such are limited. Therefore, we will respond to such demands preferentially.
Q3. The supply and demand balance for passive components is becoming extremely tight, and Taiwanese manufacturers announced they’ve raised their prices. What are your thoughts on the price situation? In addition, the price of cobalt used for batteries is rising sharply. Will you be able to reflect this in your pricing?
A3. As for MLCCs, various companies are negotiating price adjustments and we have asked specifically for price adjustments for unprofitable products. As for high-reliability products and products related to coils, it is too early to make price adjustments.
As for batteries, the price of cobalt is rising sharply as you mentioned. We explained about cost reduction earlier, and the rise in costs due to soaring cobalt prices is offset by passing it on to product prices. The offset ratio isn’t 100% due to some time lag, but the rise in cobalt price is almost completely absorbed by the selling price.
Q4. In the performance briefing held in July, it was forecasted that net sales of sensor application products for the full year is approximately 1.7 to 2 times of that in the previous fiscal year and that operating loss will be 13.0 billion yen. Has there been any change to the forecast?
A4. The forecast net sales of sensor application products for the full fiscal year has been revised and increased slightly to 1.8 to 2.1 times of that in the previous fiscal year. As for forecast operating loss for the full fiscal year, we expect acquisition costs to increase by approximately 1.0 billion yen in the first half due to factors such as recent inventory valuation, and one-time expenses of approximately 10.0 billion yen to arise over the year. In addition, concerning the sensor business including InvenSense, we have been making efforts since second quarter to enhance development with an aim to achieve growth in the next fiscal year onward, and expect associated costs of approximately 2.0 billion yen. Due to these factors, we anticipate an increase of 3.0 billion yen from the previous forecast of 13.0 billion yen.
Q5. How has the use of TDK sensors for products of major smartphone manufacturers changed since last year’s models? How will this impact net sales of the current fiscal year through to next fiscal year?
A5. Please allow us to refrain from making comments on certain clients. However, we are aware of changes in business structure and that such changes will have an impact on the current and next fiscal year. Meanwhile, we are expanding our customer base in Asia including China in the field of mobile phones, with a particular focus on six-axis motion sensors. As for expanding our products to be applied, launches have kicked off for not only six-axis motion sensors, but also seven-axis motion sensors, which are gyro acceleration sensors with air pressure sensors added, targeting IoT-related fields including drones. We have also successfully entered into the game consoles field and aim to increase engagement in the fiscal years to come through advance investment in these fields.
Q6. When comparing the current sensor business with that as the performance briefing in July, has the impact from major clients changed? What is the outlook for increase in net sales for the next fiscal year given the past three months?
A6. Although we refrain from making comments on certain clients, our forecast itself hasn’t changed from before and the impact is already included in our expectation.
As for MEMS sensors, we plan to launch ultrasonic fingerprint sensors targeting next fiscal year and believe that it will be applicable beyond mobile phones. As for microphones, although both TDK and InvenSense had some engagement, the organizations have already been integrated and the integration of roadmaps has also completed. While we have already entered into the field of mobile phones, over the past three months it has come to light that microphones with high signal-to-noise ratio based on TDK’s packaging technology may be applicable to AI speakers and such. TMR sensors are also now found in the mobile phone field, and we expect that expansion of their application and clients will further progress in the next and following fiscal years. Temperature and pressure sensors and TMR sensors are steadily growing for use in automobiles, but we will aim for their significant expansion in the next and following fiscal years.
Q7. A lot of preparations were made for integrating InvenSense in the fusing of people and technology. Is it going smoothly now, after three months have passed?
A7. In the case of microphones, we have unified the roadmaps and created a system to distribute all development staff in a focused manner. In addition, although external parties handle production for InvenSense as it is fabless, improving product characteristics and asset efficiency are now within sight through partial use of internal processes. Furthermore, packaging technology used for EPCOS’s SAW filter and BAW filter can be applied for MEMS sensors as well, and we are considering methods to utilize back-end capacity such as in HDD head manufacturing at SAE Magnetics.
Q8. In Europe, automobiles with 48V power supply have begun to spread and the markets for DC-DC converts, AC-DC converts and chargers are expected to grow. What is the situation for TDK regarding expansion of sales? In addition, it is believed that considering the Chinese market as the next step is unavoidable. Is there any plan to sell systems through partnerships with Chinese companies?
A8. We’ve started making inroads with European- and Japanese-platform clients at a system level. We are placing priority on addressing advanced technologies. On the other hand, the Chinese market may shift dramatically. We are aiming to be engaged in things that TDK alone isn’t capable of doing by involving Chinese partners in our efforts.
Q9. Are there any plans to make power solutions an independent business department?
A9. TDK has two departments related to power. One is Lambda, which handles power supplies for industrial equipment and the other is to be dedicated to automotive power. We hope to integrate the departments in the medium term and have them share technologies and engineers, although we need to assess timing as these two businesses have very different business formats.
Q10. It seems demand for high-performance magnets will increase as demands for motors to be applied in automotive and robots will increase. It was said that metal magnets are growing especially, offsetting reduction in VCM magnets for HDDs. What is the strategy for the next fiscal year onward, including the aspect of procuring material?
A10. I believe there are three reasons why TDK’s magnets were performing somewhat poorly until now. First, we were considerably focused on VSM magnets for HDDs. However, we made it clear and proceeded to shift to automotive application, industrial equipment application and motors application. Second, costs for our system were large compared to net sales. Concerning this, we will improve efficiency by reviewing the global supply chain. Third, we failed to improve our production technology. For this, we have built a pilot line mainly at the Narita plant, with thoroughly brushed-up production technologies, and are focused on the efficient production of products with high reliability and high quality for automotive application from start to finish. In addition, we can reduce the ratio of material costs by eliminating waste through the development of a production method that does not scrape blocks for casting but creates the form from scratch. In 2019, our system will be enabled to produce magnets for automotive application through the model line.
Q11. Both sales and profits of rechargeable batteries were very strong in the first half. Will they continue to grow in the second half onward?
A11. ATL has reinforced its battery-production capabilities year after year, and has very large supply capacity. It has also made progress in enhancing product reliability, and receives inquiries from many clients on applications even for those other than smartphones, which it was highly dependent on until now. Supply for wearable device application is increasing in particular and we hope to develop into non-ICT markets in stages. Furthermore, as pouch cells become popular even for PC batteries, we hope to realize its ever-increasing growth by making efforts in the next fiscal year as well through investment for increased production.
Q12. Concerning batteries, it was said that you seek to maintain ever-increasing growth through investment for increased production in the next fiscal year as well. Can you tell us specifically what is needed to increase the capacity? Also, what is the target increase in rate of income?
A12. We’ve increased production of batteries by approximately 15% from the previous fiscal year. We aim to enhance production capabilities by 10 to 15% in the next fiscal year as well. The target of production increase is not limited to pouch cells for smartphones. We are considering increasing production of mini cell batteries which are used for wearables products, and batteries that are capable of instantaneous high output such as batteries for rather high-output drones and robots, in a simultaneous manner.

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