The 127th Ordinary General Meeting of Shareholders Q & A

Q1. What are your basic policy and strategy on intellectual property?

A1. We have a policy of respecting patents held by third parties and asking third parties to respect our patents. In addition, because TDK has a wide range of business areas and operates globally, we are appropriately promoting the use of intellectual property while taking into consideration the security of our business, technological advantage and cost effectiveness.

Q2. What are your views on inventions by employees?

A2. In principle, inventions by employees belong to our company. In addition, to encourage inventions, we have established internal incentive regulations that reward the contributions of inventors. In particular, for inventions that contribute significantly to our business activities, we reward inventors with incentives for filing and registration as well as consideration that satisfies both rationality and satisfaction.

Q3. I would like to learn about the market sales ratio of ceramic capacitors.

A3. TDK’s ceramic capacitors are mainly used for automotive applications and industrial equipment, and the market share for Information and Communication Technology (ICT) applications is not so high. We hope to increase our market share for automobile applications as electrification of vehicles and automobile components continue to progress with the spread of Electric Vehicles (EVs) and Advanced Driving Assistance Systems (ADAS).

Q4. Can you explain the background for your projections for sales and profit of the Energy Application Products segment in FY2024 (the fiscal year ending March 2024)? Is there any impact due to the shift of medium capacity rechargeable batteries to the joint venture (JV)?

A4. Sales of the Energy Application Products segment for FY2024 is expected to decline by about 20% year on year. This is attributable mainly to an expected decline in selling prices in line with decreasing raw material prices on top of the drop in demand for ICT equipment including smartphones. In term of profit, we aim to achieve the same level of profitability as the previous fiscal year by promoting enhanced productivity through further cost reduction while striving to maintain and expand our market share even amid the sluggish market environment. While net sales are expected to decrease slightly as a result of the transfer of medium capacity rechargeable batteries to the JV in FY2024, the 20% year-on-year decline in sales is attributable mainly to the aforementioned factors.

Q5. I saw an article stating that the Bank of Japan holds a significant number of TDK shares. I would like to know your understanding on the status of exercise of voting rights.

A5. We are aware that a substantial amount of TDK’s shares is included in the ETFs held by the Bank of Japan. Because the Bank of Japan is positioned as a provider of funds to practical shareholders, rather than shareholders on the shareholder register or the practical shareholders behind them, it is not possible to ascertain what decisions the Bank itself makes regarding the exercise of voting rights. As voting rights are exercised by institutional investors who are practical shareholders, we promote activities to communicate with institutional investors through our daily IR and SR activities and to gain their understanding of the management that we aim to achieve.

Q6. What are the future developments in the Indian market?

A6. Regarding the rechargeable battery business, China is currently our main production base. However, we started production in India in 2017, and have established an integrated production system from cell to pack, although in small quantities. In addition, we are building a new plant in India, which is expected to go into full operation in 2025. We also have a production base for passive components in India. With regard to the deployment of production bases, our policy is to respond appropriately and flexibly, taking into account not only geopolitical risks but also the tax systems, customer needs and supply chains of each country.

Q7. What are your views on the long-term market growth of electronic components?

A7. Demand for smartphones and other ICT equipment has been sluggish. However, from a long-term perspective, we believe that the two major trends of Digital Transformation (DX) and Energy Transformation (EX) will continue to evolve in the future. Although we cannot provide specific figures for the long-term market growth rate, we believe that electronic components will continue to grow steadily thanks to these trends. TDK conducts business in well-balanced market segments, including ICT, automotive, and industrial equipment and energy. Therefore, we aim to achieve sustainable growth by implementing measures in a timely manner to meet demand that is expected to expand in the future.

Q8. Looking at the current composition of the Board of Directors, I feel that the number of female and foreign directors is very small. I would like to hear the opinions of President Saito and Outside Director Nakayama on the composition and direction of the Board of Directors.

A8. President Saito: We will continue to actively promote the appointment of female and foreign directors, aiming to revitalize the Board of Directors and the Audit & Supervisory Board.
Outside Director Nakayama: TDK's Board of Directors is made up of a small number of directors, and there are no disparities among male, female and foreign directors. We conduct mid- and long-term discussions in a very free and open manner and manage risks appropriately. In addition, TDK has established an excellent human resource education system, and we recognize that there are a large number of future candidates for female and foreign executive officers around the world.

Q9. One year has passed since President Saito took office. What issues do you feel you must focus most on going forward?

A9. One year has passed since I took office, and I want to move TDK to a new growth stage. We are currently implementing various measures with our team members of “TDK United.” While focusing on our growth businesses in strategic products such as ceramic capacitors, sensors and batteries, we will also work on the improvement of some businesses that we have identified as issues. We will continue to expand TDK’s businesses by concentrating on these two areas. We also believe that we must focus more on non-financial (future finance) and ESG initiatives. In particular, we consider “people” as our most important asset, and we will further strengthen measures to enable our people to grow and further invest in human capital. With the above issues and thoughts in mind, we hope to contribute to the sustainable growth of our company.

Q10. Compared to other companies, I feel there is a lack of diversity in the skill matrix of Directors and Audit & Supervisory Board Members. What do you think about it?

A10. We annually evaluate the effectiveness of the Board of Directors, including its advisory bodies. It has been confirmed that the effectiveness of the Board is sufficiently ensured under the current system based on the results of the evaluation. We will continue to evaluate the effectiveness of the Board on an ongoing basis and take appropriate measures to address the diversity of our Directors and Audit & Supervisory Board Members.

Q11. You have set a goal of achieving a 15% ratio of women in managerial positions by 2035. What specific initiatives are you taking to achieve this? Also, I would like to know the ratio of male to female Japanese employees who are seconded overseas.

A11. We have set a goal of achieving a 15% ratio of women in managerial positions in 2035, which is the 100th anniversary of our founding. In Japan, the percentage of women in managerial positions increased from 2.3% at the end of March 2021, to 3.2% at the end of March 2022, and to 4.3% as of April 2023. To achieve our goal, in addition to strengthening efforts to hire women, expand job categories, provide support for continuing to work, and develop a work environment, we are reforming our corporate culture, developing skills of female employees, raising awareness of male managers, and implementing measures to prevent harassment. In addition, in April 2023, we established an organization to promote Diversity, Equity, and Inclusion (DE&I) globally. Also, the ratio of female employees seconded overseas is 2.5% (7 out of 275 seconded employees in total), indicating that the majority of those seconded overseas are male employees. We will continue to work diligently to promote the advancement of female employees.

Q12. I would like to know about your initiatives related to LGBT.

A12. The TDK Code of Conduct proclaims respect for human rights and the prohibition of discrimination, and we have introduced full-scale employee education to properly understand LGBTQ+ and other sexual minorities. We are also gradually introducing facilities at our manufacturing plants, such as restrooms and dressing rooms, that can be used by sexual minorities. We will continue to make diligent efforts to promote initiatives related to LGBTQ+ and other minority groups.

Q13. According to media reports, data center demand has been recovering. I would like to know your view on the current and future market trends related to Hard Disk Drives (HDDs) and demand for HDD heads.

A13. With the amount of data stored growing rapidly due to the expansion of cloud computing, we expect demand for data center storage devices to continue to grow. We also see HDDs continuing to dominate in data center storage devices due to their cost and capacity advantages, despite a decline in prices of Solid-State Drives (SSDs). Although HDD demand has been sluggish since the second half of 2022 due to geopolitical issues and deterioration of the macroeconomy caused by the economic downturn, we expect demand to increase over the medium to long term and total demand for HDD heads to continue to increase. Furthermore, nearline HDDs for data centers are expected to dominate the HDD market in the future. As a specialized manufacturer of magnetic heads, TDK has already commenced mass production of microwave-assisted recording heads and is preparing for the mass production of heat-assisted recording heads.

Q14. The term "condenser" is used to describe a “capacitor” in the Japanese disclosure materials, but I don’t think the term is used much outside Japan. The term "capacitor" is more commonly used in the world, I guess.

A14. We will use appropriate terms depending on the situation. Thank you for your valuable opinion.

Q15. Can you tell us about specific initiatives that you are taking to improve labor productivity?

A15. We are promoting the Internet of Things (IoT) in our production activities to improve productivity, and using Artificial Intelligence (AI) and big data analysis to build autonomous production processes and realize smart factories. In addition, at the manufacturing sites, individual employees engage in improvement activities through small group activities. We strive to improve quality and productivity at the site level.

Q16. Can you tell us about specific initiatives that you are taking to improve labor productivity in back-office departments?

A16. While we are implementing various measures to promote work style reforms, we will continue to improve labor productivity in back-office departments with a view to shifting to job-based employment in the future.

Q17. What are your measures to prevent the leakage of technical information?

A17. With respect to important technical information, we limit the number of employees who can access the information, and restricts the transfer of important information outside the company, for example, by requiring approval for the use of recording media that can be used to transfer information. In addition, in the case of joint development with third parties, a non-disclosure agreement has been signed in advance to ensure thorough control of information. We also examine whether technical information can be made public in external presentations at academic conferences. Furthermore, as a measure to prevent information leaks through people, we require our employees to sign a written pledge to prohibit information leaks after resignation, and we manage the history of access to internal information before resignation. In addition, we have established a system to reward engineers and inventions in an effort to prevent the loss of technical talents.