Investor Relations | IR Events | Performance Briefing

[ 1st Quarter of fiscal 2023 Performance Briefing ]Q&A

Q1. It appears that profits for the first quarter of the fiscal year ending March 2023 were higher than forecast. What is the background to this in terms of which areas were higher?
A1. While profit was higher than our initial forecasts for the first quarter across the Company, around half of that was due to foreign exchange, while the remaining one half or so was based on actual performance. For the Passive Components segment, excluding forex effects performance was largely in line with initial forecasts on a sales volume basis, with profit higher than forecast. In the Sensor Application Products segment, even when forex effects are excluded, there was growth on a volume basis, and profit was proportional to sales. In the Magnetic Application Products segment, heads are running below initial forecasts on a volume basis, and the environment is somewhat more severe than initially expected. In the Energy Application Products segment, when forex effects are excluded, net sales are below the initial forecast. However, profit is benefiting from emerging effects of cost improvements including SG&A expenses. While material prices were basically at levels in line with our forecasts, in part due to surcharges from the fourth quarter of the previous fiscal year, prices were slightly above our initial forecasts.
Q2. Inventory has increased compared with the end of the fourth quarter in the previous fiscal year. Will this have a negative impact on capacity utilization and profit margins towards the second quarter?
A2. Inventories have increased by a little over 60 billion yen compared with the end of the previous fiscal year when forex effects are excluded. As with previously, a lot of our efforts are focused on securing raw materials for batteries, including cobalt. Increased inventories due to built up stock is not that large, and we see any impact on operation from the second quarter onward to be limited.
Q3. What are the trends for MLCCs and what is the BB ratio level overall at the moment? Demand for automotive market seems to be extremely strong. What is the view on inventory on the customer side?
A3. Demand for MLCCs has continued to be strong for automotive market. This is also apparent in the results for the first quarter. Among these results, demand for EV, ADAS and autonomous driving applications continues to be solid. However, looking at near-term orders, there was a slight weakening in April, May and June. Although we do not have detailed information about inventory on the customer side, we have the impression that Tier 1 inventory has built up slightly. Regarding the BB ratio, orders are still above 1 as of June. Orders have exceeded net sales, and we are still working through a backlog of orders.
Q4. Regarding passive components, there is talk that other companies will reduce capacity utilization towards the second quarter in this area. Are there any changes to recent trends in orders? What is the state of capacity utilization from the first quarter to the second quarter and beyond?
A4. Recent orders have been on a slight downward trend in April, May and June, but we continue to deal with an order backlog. During the second quarter we have no plans to reduce production or make production adjustments.
Q5. It appears that smartphone demand was sluggish in the first quarter. Given that situation, what is the background behind ongoing revenue improvement in the Sensor Application Products segment?
A5. In the first quarter there was an overall drop in demand for Chinese smartphones, but orders from customers went against this trend and were greater than expected. The products that made a large contribution in particular during the first quarter were MEMS Sensors. For some time, we have been working to expand our customer base and applications. Magnetic Sensors for smartphones saw growth. Growth in sales of Hall Sensors for automotive market contributed significantly to net sales in the first quarter. We hope to turn MEMS Sensors completely profitable by the final year of the current mid-term plan as scheduled.
Q6. In the Magnetic Application Products segment, what developments will there be in the second quarter on a volume basis? I assume there will be some new product launches, but do you expect the percentage of new products to increase among Nearline products?
A6. On a volume basis, we expect to increase in relation to the first quarter. There will be a slight increase in volume for PCs as well, but our basic view is that Nearline will increase. We expect new products utilizing new technologies to increase from the first quarter to the second quarter and beyond.
Q7. Has there been any progress on joint ventures with CATL since the announcement in April 2022?
A7. Regarding joint ventures with CATL, in June 2022 we completed the establishment of the Ampcore, which will handle cells, and the Ampack, which will handle packs. The manager of our medium sized battery business was selected as representative for both companies. This is the result of selecting a more suitable person in the course of discussions with CATL. For our part, we will support this representative while continuing to promote business with CATL. We are making decisions about the establishment of these kinds of joint ventures and their frameworks, and at the same time making progress with discussions about business. One of the biggest merits to doing business under these latest joint ventures is that we can maintain a broad lineup of products. By adding CATL's cylindrical and rectangular batteries to the lineup in addition to our pouch type batteries, we will be able to propose the optimum batteries for each application. Although actually launching sales is still some way off, this should allow us to seize upon a few more business opportunities.
Q8. TDK said that demand for residential energy storage systems has increased. What is the specific situation behind this?
A8. Looking at medium sized batteries overall, sales approximately doubled in the first quarter compared with the previous quarter. It is residential energy storage systems driving this demand for medium sized batteries. In terms of the specific background to the increase, particularly in Europe an energy supply crisis is currently unfolding. As a response to this, demand has strengthened, particularly for Europe. As we are not only making sales to Europe but domestically in Japan, to the US and elsewhere, we expect to see an expansion in each of these other regions as well.