- Q1. What is the profit outlook for the second quarter by segment?
- A1. Overall, we expect net sales to increase, reflecting increased sales for the automotive market, growing AI ecosystem-related demand, as well as entry to the peak season for smartphone demand. We forecast increased operating profit, partly due to higher profit on the back of higher sales, as well as a gain on improvement in capacity utilization rates.
In the Passive Components segment, net sales in real terms, excluding the effects of foreign exchange rates, will increase for all products. We expect that, in real terms, excluding the effects of foreign exchange rates, operating profit will increase in all businesses. Especially in the second quarter, we forecast increased profit from inductive devices. We expect that the operating profit margin of the Passive Components segment will be more than double digits.
In the Sensor Application Products segment, we project that sales of TMR sensors will rise, reflecting seasonal growth in demand, especially for smartphone applications. We expect that operating profit will increase on the back of higher sales of TMR sensors and profit from temperature and pressure sensors will also improve at last, pushing up overall profit.
In the Magnetic Application Products segment, we anticipate increased sales volumes of HDD heads and suspension assemblies. In addition to increased sales of HDD heads and suspension assemblies, a gain on improvement in capacity utilization for HDD heads will push up operating profit, and we expect to see a better operating profit margin in the second quarter than in the first.
In the Energy Application Products segment, sales of small capacity batteries will rise on the back of a 10% increase in sales volume, and power supply sales are also expected to continue growing. Operating profit will be slightly affected by rising prices for battery materials but is nonetheless expected to increase, reflecting higher average selling prices due to an increase in high value added items, a gain on capacity utilization, and the effect of higher sales.
- Q2. Regarding full-year performance, when compared with the initial plan, which businesses seem to being doing better and which businesses seem to be struggling?
- A2. In our view, net sales are generally slightly better than planned. The products that are expected to contribute significantly to profit are HDD heads and suspension assemblies in the Magnetic Application Products segment. For HDD heads in particular, we have ramped up wafer starts and expect to see improvement in capacity utilization rates. On the selling prices front, it is possible to raise the level of profit generated from both HDD heads and suspension assemblies through appropriate pricing according to supply and demand.
Another segment that is doing well is the Passive Components segment. Demand for AI data centers is expected to contribute to an increase in sales from the second quarter. This business is also projected to be profitable and we expect it to notch up profit.
As for batteries, despite decline in smartphone production, we aim to achieve shipments of small capacity battery cells in line with the initial plan. We also intend to maintain the initially envisaged level of profit.
- Q3. Hyperscalers' investment has jumped. I guess this is also beneficial for the electronic components sector. Will TDK's capital expenditures continue increasing significantly next fiscal year as well?
- A3. Our basic approach is to make capital expenditures in a timely and appropriate manner based on an assessment of data center trends and other developments.
In the Passive Components segment, we will meet production needs for capacitors by first striking a balance between lines, in order to make effective use of the facilities we have invested in to date. We will then propose an investment plan based on assessment of demand. Currently I feel it is most important to invest in inductors. In connection with AI data centers, demand for inductors is growing rapidly, prompting us to consider significant investment. In the Magnetic Application Products segment, we are making capital expenditures in the HDD heads business in response to HAMR technology, while we are also gradually making capital expenditures in the suspension assemblies business.
- Q4. This was quite a good set of results and your profits appear to have surged. What has started going well out of the things you've been doing?
- A4. There's no doubt that in recent years the foundation underpinning our profits has been the battery business. Maintaining a solid foundation in face of all kinds of competition is a major factor in our performance. On the other hand, this has been described as a single source approach with heavy reliance on batteries; however, our understanding is that our results have not simply gotten better due to favorable demand conditions and that our current high profits are underpinned by major changes in our profit structure.
In the HDD heads and suspension assemblies businesses, we have properly implemented restructurings to lower the break-even point while properly capture growing demand at the same time. Also in the MEMS sensor business, we have expanded our market share through the steady release of new products alongside restructurings. Likewise in the Passive Components segment, we have secured sales of automotive products to serve as a foundation and we are also properly tapping into demand for AI data centers. Underlying all these improvements is business portfolio management, which is now in its third year of implementation. I believe our efforts to improve profit at a smaller Cash Flow Business Unit (CBU) level -rather than as a big group of business entities- have really paid off.
- Q5. Tell us about your initiatives for AI data centers by segment.
- A5. In the Passive Components segment, CPU and GPU performance has improved and new vertical power delivery technology is being adopted and, along with various packaging technologies and various circuit designs to ensure the stable operation of semiconductors, inductive devices are becoming the next technology trigger. In this context, we are starting to realize that our thin-film technology is a very good match for customer requirements in terms of compact, low-profile inductive devices that handle large currents. We intend to further grow this business by concentrating development resources on inductors and focusing on investment to increase production.
In the Sensor Application Products segment, temperature sensors are already being shipped for AI data center applications such as power supplies, liquid cooling and server racks. A current focus of our attention is temperature sensors for optical transceivers. We possess materials technology and process technology, and inquiries about our distinctive products are gradually increasing. In the current sensor business, we expect that high-frequency current sensors using TMR sensors will increase in the future.
In the medium capacity battery business, this fiscal year, we are focusing on Uninterruptible Power Supply (UPS) systems. We are leveraging our strengths in terms of high output and rapid charging to achieve differentiation in the UPS systems market. Our understanding is that the role of UPS systems is changing from providing backup power in the event of a power outage to supporting electrical load in AI data center, higher power density and serving as control systems that underpin these functions. We recognize that the UPS systems market is as important as the Battery Backup Unit (BBU) market. In the BBU market, we have already received the go-ahead from several customers. We plan to start volume production of high-voltage DC battery backup units from the third quarter.
