Investor Relations | IR Events | Performance Briefing

[ 2nd Quarter of fiscal 2021 Performance Briefing ]Q&A

Q1. What is the supply and demand situation for MLCCs? It seems that demand for MLCCs in the automotive market has recovered, but what is your outlook for the second half of this fiscal year?
A1. As you noted, from around July we began to see a recovery led by the automotive market. As TDK has handled this with the inventory it strategically built up in anticipation of this recovery, we have avoided a situation that would inconvenience customers. While we expect this recovery trend to continue through the second half of this fiscal year, as we are still in the start-up phase, there may be a build up of inventory for some customers. We will respond while keeping close watch on automobile production and sales trends. In the long term, we expect to see more products that are highly reliable and have high rated voltages due to the rising proportion of eco-friendly vehicles. We intend to carefully examine demand and prepare accordingly, while figuring the risks of second and third waves of COVID-19 infections into our calculations.
Q2. What are your plans for the enhancement of MLCC production capacity in the next fiscal year?
A2.  As the process from customer approval to actual use takes time for automotive components, we hope to respond with gradually increased production while maintaining our current position. As TDK is able to display its strengths in the area of eco-friendly cars with their particularly high voltages, we will secure our position while pursuing further development.
Q3. What is the current status of MEMS sensors, and when do you expect the Sensor Application Products segment as a whole to move into the black?
A3. MEMS sensors are currently recovering from the significant slump that occurred in the first quarter, and sales have grown, particularly in the Chinese smartphone market. By continuing to expand our customer base, we plan to expand sales by around 20% from the second quarter to the third quarter, mainly on the strength of strategic products such as motion sensors and microphones. We are behind schedule on ramping up to mass production for some microphone products, but through future launches we are looking to significantly expand the MEMS sensor business by increasing sales for smartphone and IoT applications and so on.
As for bringing the overall segment into profitability, in the current fiscal year we have been affected not only by a slump in automotive demand but also by COVID-19. While our cost-cutting measures will start to show promise, we will continue to pay close attention to the macro environment as we consider plans for the next fiscal year and beyond. We want to move into profitability as early as possible.
Q4. TDK specializes in pouch-type power cells, but what are the advantages over the cylindrical type? It seems that pouch-type power cells are a comparatively new endeavor, but is this type gaining more recognition in the market?
A4. The pouch type has advantages in that it does not reach high temperatures and can output high power levels. More than the pouch type gaining recognition, we are developing the market for it.
Q5. In what sort of applications have power cells established a track record? In addition, what is the proportion of power cells among overall battery sales, and how do you see this increasing in the next fiscal year and beyond?
A5. From this fiscal year, we have started shipments on a mass production basis to various customers in Japan, Europe, the United States, China and elsewhere, and we have established a track record with power cells for residential energy storage systems and e-drives. Power cells still account for only about 5% of overall battery sales, but we will make capital investments and hope to achieve double-digit proportion from the next fiscal year onwards.
Q6. It seems easier to utilize the benefits of pouch-type power cells in mobile devices such as e-drives and vacuum cleaners rather than residential energy storage systems. What uses will you be targeting from the next fiscal year onward?
A6.  As you noted, different performance is demanded of a power cell depending on what it is used for, but TDK is not targeting one application or the other, but rather both. With batteries for residential energy storage systems, we are able to make products that are highly safe and feature long life thanks to the use of proprietary material and design technologies. And as batteries for mobile devices like e-drives and vacuum cleaners require extremely high levels of safety and reliability, we want to make full use of the technologies we have cultivated to date in an effort to expand sales.
Q7. The electrification of home delivery vehicles has advanced around the world, and it is even a fast-growing market in China. Is there potential for TDK’s power cells to be used for those kinds of applications?
A7. The number of shared bikes in China is on the rise due to COVID-19, and those bikes use batteries. TDK hopes to gain market share by featuring the high levels of safety in its batteries. We are also looking closely at trends in the electrification of home delivery vehicles.
Q8. The capacities of batteries for 5G smartphones are not always going to increase, but is there an impact on average sales prices due to that?
A8. As we are not only offering more capacity but added value such as quick recharging and high levels of safety as well, we hope to get customers to recognize those qualities and are working to prevent average sales prices from simply declining.
Q9. What was the background of establishing a subsidiary of ATL in Singapore?
A9. We announced the establishment of the subsidiary on the expectation of market expansion in Asia and the utilization of Asia as a manufacturing base. In addition to finance functions, going forward we believe the subsidiary will become a core company in Asia that combines staffing and material procurement functions as well.
Q10. You announced a capital investment increase of 20 billion yen. What is your forecast for the enhancement of battery production capacity?
A10. We plan to invest mainly in power cell-related areas.
Q11. Why do you forecast a decline in operating income despite a slight increase in sales from the first half to the second half of this fiscal year? You have also said that you think sales in the third quarter will be on par with the second quarter. What is your expectation for operating income in the third quarter?
A11. For the second half of the year we expect to post operating income just below 50 billion yen, but we forecast a slight appreciation of the yen against the U.S. dollar which we view will have a negative exchange rate impact of around 4 billion yen. We have also taken into account discounted sales prices and the effects of reduced operation during the Lunar New Year holidays. We also plan to increase investments in the battery business where we are expanding operations with a focus on power cells, and we expect to incur costs to reinforce systems and accelerate development. For those reasons, we forecast a slight drop in operating income from the first half to the second half of the year.
Similarly, we expect operating income to decline slightly from the second quarter to the third quarter. As with our forecast from the first half to the second half of the year, we expect discounted sales prices and cost to strengthen systems.
Q12. What is the forecast for the fourth quarter sales by segment?
A12. In the Passive Components segment, we expect the fourth quarter sales to be mostly on par with the third quarter. In the Sensor Application Products segment, we are looking at a slight increase from the third quarter. For the Magnetic Application Products segment, we think sales will be largely unchanged from the third quarter, while in the Energy Application Products segment, we predict a significant decline due to seasonality, as usual.
Q13. TDK has many custom products and has expanded its partnerships with customers globally. Is TDK considering any partnerships or alliances with customers such as in automotive power modules?
A13. As you pointed out, power supplies have become increasingly modularized as the electrification of cars has advanced, and we are anticipating this trend. Instead of just selling DC-DC converters and on-board chargers as standalone products, we are looking into creating hybrids that combine these products, and even how to combine them with battery units. We are also considering what companies to join forces with, whether automakers, drive unit manufacturers or battery producers. In addition, we see opportunities for TDK to leverage its strengths in ferrite to address heat and noise generation, so we will continue to steadily pursue those areas.