Investor Relations | IR Events | Performance Briefing

[ 1st Quarter of fiscal 2020 Performance Briefing ]Q&A

Q1. Regarding sales of Passive Components in the first quarter, although sales of Capacitors were lower than in the fourth quarter of the previous fiscal year, and sales of Inductive Devices remained at a fairly constant level, I view the percentage share of both of these types of components for the automotive market as being relatively high. How do you view the distributable inventory of Capacitors and Inductive Devices in the automotive market? Also, please tell us your forecast with regard to operating status for Capacitor production in the second quarter and beyond?
A1. Firstly, with regard to inventory status, for Capacitors, we think that inventory will continue to not be consumed mainly by distributors. For Inductors, we recognize that inventory is not increasing as much as in comparison with Capacitors. With regard to our operating status for Capacitor production, we do not expect our operating level to decrease because we predict that orders will return, primarily for the automotive market, from the second quarter onwards. Although we are not in a state of insufficient capacity as in the previous fiscal year, we are operating at almost full capacity.
Q2. You say that the deceleration in sales of capacitors for automotive applications is expected to recover from the second quarter onwards. What are the reasons behind that way of thinking?
A2. TDK has yearly or long-term contracts with its customers, and receives customer forecasts. Judging by these forecasts, it seems that orders from auto parts manufacturers are returning from the second quarter onwards, so we think that the situation will recover.
Q3. Please tell us your image of how profits will improve based on the forecast that sales of Sensor Application Products will increase by 14% to 17% in the second quarter. I expect to see growth in sales of TMR Sensors and other products that are comparatively consumer oriented, and which can contribute easily to profits. How does this assessment compare with yours?
A3. We expect second quarter sales to the automotive market to increase slightly. We believe that we can steadily increase sales of TMR sensors, motion sensors, and microphones for the ICT market, game consoles and other consumer applications in the second quarter. In particular, profits will increase with an increase in the volume of MEMS Sensors sold. We have also begun shipping small quantities of fingerprint sensors for IoT applications to module manufacturers. As we have said earlier, the expansion of our customer base and applications for these products is progressing smoothly. We expect the automotive market to recover in the second half of the year. Although the proportion of sales in the second half of the year will be greater than in the previous fiscal year, we still hope to achieve our targets for the year overall.
Q4. Regarding InvenSense, you have announced that sales of MEMS Sensors, which increased from the fourth quarter of the previous fiscal year to the first quarter of the current fiscal year, will also increase in the second quarter, and that sales of fingerprint sensors will also increase. Based on this, I would think that you can expect to see quite an improvement in profits. What is your assessment?
A4. As you say, with the exception of acquisition costs, improvements are progressing. Motion sensors and microphones are expected to make a significant contribution in the second quarter, and we expect this trend to continue in the third and fourth quarters. We do not anticipate significant growth in sales of fingerprint sensors, which we had expected to see last fiscal year. Moving forward, we would like to improve profits on a quarterly basis by expanding our customer base for motion sensors, expanding our customer base and expanding the range of applications for microphones, and adding sales of barometric pressure sensors, although these will be in relatively small volumes.
Q5. You have announced that the volume of HDD Heads sold is expected to increase by approximately 6% in the second quarter. Please tell us how sales volumes for pure heads, excluding HDD assemblies, are progressing. Also, what is your forecast for the third and fourth quarters?
A5. The index for the first quarter is 88. For the second quarter it is 93, for the third quarter it is 96, and for the fourth quarter it is 87. We expect sales to progress at these kinds of levels. The slight increase in comparison with predictions for the first quarter was due to a significant increase in sales of heads for use in 1TB PCs. In sales for data center applications, there is a trend of slight recovery from the second quarter onwards. Heads for use in 12TB drives are the mainstream, while we expect sales of heads for 14TB drives to increase in the third and fourth quarters.
Q6. Sales of Rechargeable Batteries have increased greatly since the fourth quarter of the last fiscal year. Have transactions with new customers, particularly smartphone manufacturers, significantly increased? Also, please tell us how you view customers’ current inventory status.
A6. Sales are usually lowest during the fourth quarter, due to factors such as seasonal fluctuations and the Chinese New Year, and then increase again in the first quarter. As well as an increase in transactions with major smartphone manufacturers, sales of batteries for notebook PC and sales of mini cells are also increasing, and sales for the ICT market have increased overall. Although we do not have an accurate grasp of customers’ inventory status, our thinking is that if customers’ new product launches and shipments begin as usual, then inventory should also be increasing in comparison with the fourth quarter.
Q7. How about inventory status for Rechargeable Batteries? Also, I think that although at the beginning of the fiscal year you estimated annual sales to be around 10% higher than the previous year, sales are currently quite strong in comparison with this. Do you think that this strong performance will continue throughout the year?
A7. Inventory is within normal parameters. Also, although we did see some upturn in the first quarter, uncertainty still remains for the second half of the year, and so we do not expect the predicted annual increase of around 10% announced at the beginning of the fiscal year to change significantly at this stage.
Q8. Did you achieve this percentage profit margin for Rechargeable Batteries by receiving orders for highly profitable products?
A8. Rechargeable Batteries are custom products created for each customer. For smartphones and non-smartphone devices such as wearable devices, we have launched various products onto the market ahead of other market players, and the fact that we are receiving orders for new products based on these kinds of advantages is also a factor. Moving forward, we hope to increase marginal profits by expanding the range of applications, while at the same time continuously launching new products.
Q9. Please tell us how much the proportion of sales of mini cells increased in the first quarter, and how much that increase contributed to sales.
A9. Around 10% of total sales for Energy Application Products in the first quarter were sales of mini cells. Since the range of applications is also expanding, we believe that the proportion of sales of mini cells will increase throughout the year.
Q10. Mini cells have various applications including earphones, true wireless stereos, and game controllers. Please tell us about the potential market size and the current level of progress for each of these applications. Also, I think that batteries for 5G smartphones have a problem in that they generate a lot of heat, and it is necessary to take measures to rectify this issue. Please tell us if TDK can deliver any advantages with regard to this issue.
A10. The number of wireless earphones has been increasing recently. There are two types of batteries used with these earphones: small batteries used in the devices themselves, and batteries used with chargers. We think that there is still a lot of room for this market to grow. Although we believe that the market for game consoles will also continue to grow, we don’t expect to see rapid growth. As you say, 5G batteries have an issue with heat generation, especially during discharge, due to the large amount of current they produce. Since TDK has established its own proprietary technology that can combat this issue of heat generation, we believe we can produce products with added value that can cater to the needs of our customers.
Q11. Considering the increase in use of nearline storage, it seems that there may be a shortage of HDD Heads. But investing in HDD Heads is also risky. Please tell us whether your HDD Head production facilities can be diverted for use in the production of other thin film products such as magnetic sensors, piezoelectric sensors, and inductors.
A11. TMR Sensor was originally created through the application of HDD Head technology, and is already being produced through the diversion of HDD head production equipment. Since thin-film process equipment is expensive, when investing, we are endeavoring to increase ROI by considering whether or not used equipment can be diverted to other production processes.
Q12. Is there any impact on TDK as a result of the US-China trade frictions, or the increasing friction in relations between Japan and South Korea?
A12. Firstly, with regard to the US-China trade frictions, although we are not significantly affected by tariffs directly, the economy as a whole has slowed due to trade frictions, and demand for automobiles has also been slowing, especially in the China region. Since many of TDK’s sales are to the automobile market, we are being affected by this. There is no significant direct impact as a result of the restrictions being placed on South Korea.