Investor Relations | IR Events | Performance Briefing

[ Financial Results for Fiscal 2019 Performance Briefing ]Q&A

Q1. In your consolidated full-year projections for FY March 2020, what percentage of the net sales projection of 1,420 billion yen is accounted for by first-half sales? How do you expect net sales to change from the fourth quarter of FY March 2019 through the first quarter of FY March 2020?
A1. We expect that the first half will account for 45-49% and the first quarter alone will account for around 23%. We anticipate that sales of Passive Components will increase by around 4-7% compared to the fourth quarter of FY March 2019, mainly due to growth in MLCC and Inductor-related products. Sales of Sensor Application Products are likely to increase by around 10-13%, driven mainly by growth in Magnetic Sensors and MEMS Sensors. We predict that sales of Magnetic Application Products will fall further from the fourth quarter and will decrease by around 15-18%. We expect segment results to be impacted by a sharp fall in the volume of HDD assemblies and fewer shipments of HDD heads. Magnet sales are expected to remain mostly flat. We project that sales of Energy Application Products will increase by around 16-19%. Battery sales fell in the fourth quarter mainly due to seasonal factors but are expected to increase in the first quarter mainly due to the launch of new products for China.
Q2. How do you expect to increase consolidated operating income in FY March 2020?
A2. In the Passive Components and Energy Application Products segments, we expect that operating income will increase in step with sales growth, but we do not expect much sales growth in itself. We forecast that, overall, operating income will increase by 12.2 billion yen, mainly due to improvement in areas that made losses in the previous fiscal year.
Q3. How will capital expenditures be used in FY March 2020?
A3. We intend to invest just under 50% of the 200 billion yen of projected capital expenditures in Batteries. This is mainly expenditure aimed at expansion in the non-smartphone area and we expect to continue to increase this in the future. Just over 20% of the total is investment in Passive Components, and we plan to continuously expand MLCC production capacity. The remaining share of around 30% is investment in other products such as HDD Heads. Our investment in MEMS Sensors will be mainly investment in development rather than capital expenditure because we adopt a fabless model.
Q4. You said that, also in the interests of medium-term growth, you would invest in Batteries and Passive Components. What is your vision for these products after investment?
A4. We have set net sales of 1,650 billion yen and an operating income margin over 10% as targets under our medium-term plan and investment in Batteries in particular will be necessary to achieve this. Since we cannot expand the Battery business in the smartphone area only, we will focus on mini-cells, which have enormous potential. The mini-cell market is a market where Time to Market, Time to Volume, and Time to Quality are extremely important and this is where ATL’s strengths lie. Utilizing the business model we have used for the smartphone market will be a decisive factor. When accessories, wearables, game consoles and other devices are wireless, they require batteries as a power source, and we, therefore, plan to target this demand. Another market we intend to focus on is power cells. Although sales of power cells will not grow significantly during the current medium-term plan period, we expect that ESS for household use will contribute to energy transformations. In the current fiscal year, we will make fundamental investments to safely mass produce power cells. Meanwhile, there is also demand for battery pack products. Since we expect markets that require delivery of battery pack products such as India will increase, we are also considering investment to meet this demand. We anticipate that, through these investments, Batteries will come to account for a large share of our net sales target of 1,650 billion yen.
As for Passive Components, we intend to steadily increase production of MLCC for automotive applications. We will establish a bridgehead to the power inductor market, where TDK is not very strong, and we will generate revenue with Passive Components in the automotive industry, including autonomous driving-related products. At present, around 40% of sales of Passive Components are for automotive applications but since we aim to increase this percentage to over 50% in the medium-to-long term, we make quality investments to achieve this.
Q5. Give details of any new products you expect to contribute to sales in this fiscal year.
A5. In the Energy Application Products segment, we started developing large, high power batteries around two years ago and the platform for this is at last complete and we are currently shipping samples. At present, the volume of shipment is small but we expect to start mass production from around the third quarter.
In the Passive Components segment, we have expectations for piezo application products and are already using a PZT element as the element of speakers and haptic devices. While these products will not grow that much in terms of sales this fiscal year, we expect applications to increase steadily. We also believe that our shape memory alloy (SMA) OIS will definitely contribute significantly to sales.
In Sensor Application Products segment, we have expectations for our ultrasonic fingerprint authentication sensors, which were not launched on schedule. Moreover, we began mass production and shipment of the ToF sensors of Chirp, which we acquired in 2018, from March, although this business is small in terms of net sales. These products can be used in a range of applications including VR and we expect sales to expand in the future. We also intend to launch barometric pressure sensors mainly for IoT and wearables.
Q6. When you compare conditions at the time you formulated the plan for the current fiscal year and in the second half of April, the business environment appears to have changed, with the prospect of the launch of HDD Heads for nearline applications and a better-than-anticipated outlook for the Chinese smartphone market. Would you agree?
A6. In February, when we drew up our business plan, conditions were very bad and it seemed we made a fairly disappointing start in April and May, especially in Passive Components, and our current forecast has also been lowered slightly from the planning stage. On the other hand, we sense that products such as those we supply to OEM for automotive applications will gradually recover from around June. While we are not expecting HDD sales to be much higher than anticipated, we project that sales will probably recover provided HDD Head inventories are reduced to some extent, and we get the impression that sales will pick up slightly sooner than anticipated. Meanwhile, leading Chinese smartphone manufacturers have a great deal of momentum and, in contrast to the general pessimism, show strong demand for new devices and technologies, and we see this as promising. We recognize that there are some positive developments in a situation which we regarded as very negative back in February.
Q7. What is your sales growth forecast for MLCC in FY March 2020 and your understanding of customer inventories?
A7. We expect sales of MLCC to grow by around 10%. We recognize that distributors in China, etc. have excess inventories of commodity MLCCs but the market for automotive quality products, which is our main product, still seems tight and we are not aware that excess inventory exists.
Q8. In your initial projections for FY March 2019, you explained that sales of Sensor Application Products would increase by around 30% year on year, but actual sales results showed slight decline. You said that you expect sales of Sensor Application Products to increase by around 30% in FY March 2020. Please explain how you will achieve this growth?
A8. In FY March 2019, we expected to significantly expand sales especially for smartphone applications but factors such as delays in developing new products and lower-than-anticipated sales of existing products prevented us from doing so. Around 30% of the projected increase in sales for the current fiscal year is for automotive applications and this is a major difference compared with the previous fiscal year. For TMR sensors, we project expansion of applications in the mobile application sector and a new mass production project is almost finalized. Meanwhile, we expect to continue expanding sales of Pressure Sensors to the automotive market. Regarding motion sensors, shipments for automotive in-cabin applications began in the previous fiscal year and we expect these to continue contributing to sales. We also sought to expand our customer base throughout the previous fiscal year, and motion sensors, in particular, will grow. Meanwhile, we expect microphones to be used in a very wide range of applications. Based upon reflections on the previous fiscal year, fingerprint authentication sensors will pick up in the second half. On this basis, we intend to make the Sensor Application Products segment profitable and post operating income with business during the second half of the year and to achieve an increase of around 30% in sales on a full-year basis.
Q9. How do you plan to increase sales of Batteries during the current fiscal year?
A9. We expect that the smartphone market itself will remain mostly flat. While we do not expect any major change in our sales either, orders received from a certain leading smartphone manufacturer are expected to recover during the current fiscal year and we expect that this will push up sales. We have also received a large number of orders for mini-cells. Mini-cells have many applications, especially wearables, and we forecast higher sales.
Q10. Given that China’s smartphone market is slowing down, what is the status of battery inventories?
A10. In the fourth quarter of FY March 2019, orders decreased significantly, leading to a temporary build-up of inventories. Since orders received have increased during this first quarter, we do not have excessive amounts of inventory. The market for mini-cells remains tight and there has been no temporary build-up of inventories.