Investor Relations | IR Events | Performance Briefing

[ 3rd Quarter of fiscal 2022 Performance Briefing ]Q&A

Q1. What are changes in net sales by segment from the third quarter to the fourth in the fiscal year ending March 2022? For the fourth quarter, you foresee temporary expenses for restructuring and others of around 9.0 billion yen and the risk of tax-related one-time expenses of nearly 17.0 billion yen. What impact will this have on income?
A1. Regarding sales changes from the third quarter to the fourth, we expect a decline of around 4-7% in the Passive Components segment, a decrease of nearly 13-16% in the Sensor Application Products segment, a drop of approximately 8-11% in the Magnetic Application Products segment, a fall of around 8-11% in the Energy Application Products segment, and a sales decline of a little less than 9% overall. We assume an average foreign exchange rate of 110 yen against the U.S. dollar in the fourth quarter, while the actual rate in the third quarter was 113.67 yen. A slight decline due to this assumption is taken into account in each segment. Temporary expenses of approximately 9.0 billion yen are expected to have an approximate impact of 2.0 billion yen on each segment income. In the Passive Components segment, factors that are expected to impact income include an income fall following a sales slide and a loss on a reduction in capacity utilization during the Chinese New Year period because the segment has a large number of production sites in China. In the Sensor Application Products segment, they include an income decrease following a significant sales fall and a change in product mix after a massive sales slump of TMR sensors and others from strong sales in the third quarter for seasonal reasons. In the Magnetic Application Products segment, there will be some loss on a reduction in capacity utilization during the Chinese New Year period. A decline in production quantity will mean an income slide. The same will apply to the Energy Application Products segment. In addition, material market prices have been soaring since the third quarter. We expect to incorporate them into prices for adjustment purposes, but this will not fully absorb the impact in the fourth quarter. It will mean a cost increase that will be significantly responsible for the decline from the third quarter's level. Temporary tax-related expenses of around 17.0 billion yen will affect after-tax income.
Q2. What are the current statuses of distributor inventory and customer inventory of electronic components generally? Until the second quarter, some worked to accumulate safety stock in the overall supply chain. Did it continue in the third quarter? Will it also continue in the fourth quarter and afterwards?
A2. We understand that the levels of distributor inventory and customer inventory are both normal at the moment. Some did accumulate a stock of components for automobiles until the third quarter and we saw stocks slightly higher than actual demand. Subsequently, orders have not dropped considerably. Automobile production volume remains strong. We estimate that customers are now placing orders according to actual demand.
Q3. Do you anticipate that shipments of electronic components to the automotive market will rise in line with the growth in automobile production volumes?
A3. More components are being mounted as the EV shift and the trend towards introducing advanced driving assistance systems (ADAS) gather momentum. We forecast that increases in orders and demand for electronic components will outpace growth in automobile production volume.
Q4. What is the level of orders received for multilayer ceramic chip capacitors (MLCCs)? What is your stance on capital investment for the next fiscal year?
A4. Orders continue to surpass shipments. We see demand as buoyant. Orders peaked last summer. After that they decreased slowly. Since October or November in 2021, they have been flat. We are currently stepping up capital investment to boost capacity. We aim to achieve a double-digit increase for the next fiscal year as well.
Q5. I imagine that specific sensors for a specific customer alone are strong. Will the income level for the next fiscal year be dependent on them? Do you see profitability being stabilized by any factors other than those in the past, such as rallying demand for sensors for automotive applications?
A5. Among those for consumer applications, sales of TMR sensors are expanding. The customer base and the application base for MEMS motion sensors continue to expand. We aspire to enlarge the customer base for these sensors to all our Asian customers. In addition, we will continue to expand application base to game consoles, drones, virtual reality (VR) devices and others.
We expect that demand for sensors for automotive applications will be higher than in the current fiscal year. Sales of TMR sensors, Hall sensors and other magnetic sensors as well as temperature sensors and other conventional products will also rise.
For the current fiscal year, we forecast profitability excluding acquisition-related expenses. For the coming fiscal year, we will work to take sales to a higher level in an attempt to achieve full profitability, including acquisition-related expenses.
Q6. I regard TDK as a partner in the development of IoT equipment for IC manufacturers. What do you expect from your businesses in partnership with IC manufacturers? Will the partnership with IC manufacturers provide a clear advantage for products for the automotive market?
A6. We are striving to produce technical synergies with IC manufacturers. There are suggestions about reference designs of a conventional sensor product for smartphones. A number of new applications are emerging for other IoT devices. We are aware that we should never downplay the reference with IC manufacturers. We will work to build more robust ties with them.
Q7. How much increase in battery sales do you expect for the current fiscal year from the previous one if incorporating of rising material costs into prices and yen depreciation impacts are disregarded? What increase do you expect for the next fiscal year?
A7. Sales in the overall Energy Application Products segment are expected to rise slightly less than 10% for the current fiscal year, excluding the impacts of price shifting and foreign exchange rates. We see that the total addressable market (TAM) of smartphones itself contracted around 3% from the previous fiscal year. Despite that, sales volume in the segment is increasing to some extent.
For the coming fiscal year, we expect the ICT market to grow at a low single-digit rate in view of the forecast continuation of supply shortages of semiconductors and other components. We will enter new markets while retaining our current market shares. Power cells for non-ICT markets are expected to almost meet the target of accounting for 10% of TDK's overall battery sales. For the next fiscal year, we will try to increase power cell sales by 50% from the current fiscal year's level. For the next fiscal year, batteries for the ICT market is unlikely to grow, but we will strive for double-digit growth in overall battery sales.
Q8. For the current fiscal year, the Chinese electric motorcycle market did not expand, and I imagine that demand will grow markedly in the next fiscal year. You said that you would try for 50% sales growth in power cells. What is your outlook for the Chinese electric motorcycle market and how do you perceive this market?
A8. In the Chinese electric motorcycle market, the trend was very different between the first half and the second half of the current fiscal year. The market began to gradually pick up in the second half. We feel that demand is now spreading for the sharing of motorcycles in particular. We anticipate that we can develop it as another TDK business. It has not yet been commercialized in any region other than China, but we have negotiations underway with several companies. Using the business experience, we have accumulated in China, we hope to run this business in other markets as well.
Q9. What are your strategies on battery pricing and material procurement? For procurement, I imagine you invest in a project jointly with material manufacturers to secure part of the purchasing rights. Do you think that it is possible that procurement capabilities will determine the superiority or inferiority of specific battery manufacturers?
A9. First, with respect to pricing, we revise battery prices according to the material prices on the market. We place importance on building trust with customers by raising and lowering prices in step with changes in material prices, while maintaining transparency. Next, to answer your question on material procurement strategy, we think that material procurement will be one of the factors that dominate management after demand for batteries for electric vehicles climbs in the future. We will use deposits and other means to procure a quantity of principal materials from a medium- to long-term standpoint.
Q10. Was there any progress in the establishment of joint ventures with CATL?
A10. The establishment of joint ventures with CATL was approved in all examinations under the Antimonopoly Act in late January. We will discuss with CATL the steps to set up the joint ventures as soon as possible.
Q11. It is thought that the elements required from batteries for the mobility sector differ from those in other sectors. What plan do you have for the areas you will focus on after launching the joint ventures with CATL?
A11. We are considering addressing the mobility sector but also other areas through the joint ventures with CATL. If we define mobility as "moving," there are many different applications. Especially for small-sized models, some customers think of robot-type applications. Some applications may require different types of batteries. TDK has long been dealing with pouch-type batteries. Some customers say that they want to use prismatic or cylindrical type batteries. In the process of widening the product lineup through the joint ventures with CATL, we will have more business opportunities.