I would first like to offer our heartfelt sympathy to those individuals and their families who have been affected by COVID-19, and our sincerest thoughts and prayers for those who have died in this pandemic. I would also like to express my deep appreciation for the dedication of the many individuals working on the front lines of medicine and to everyone engaged in the work of sustaining the infrastructure of our everyday lives.
Technological Evolution Accelerates
A tiny virus, less than 0.1 microns in size, has mankind at its mercy. At the same time, it has brought enormous changes in our values and our daily lives. Those of us who once spent long hours commuting on packed trains each day have learned that our work goes on even when conducted remotely. I, too, used to spend time traveling to meetings with suppliers and partners in various locations, but now have no trouble communicating with them online. At some point, treatments and vaccines will be developed, and COVID-19 will no longer represent a major threat to mankind. And yet, I do not see us returning to our previous lives. Ironically, COVID-19—man’s enemy—has created a “new normal” life for us, and has accelerated the evolution of technology. While the pandemic has had a vast impact on society, we see this as an opportunity to move toward a new era, and TDK has already begun its own transformation based on this “new steady state.”
TDK Is Accelerating Its Reforms, Seeing an Opportunity to Move Toward a New Era
TDK’s Proven Resilience
As the pandemic has brought turmoil to society and the economy, TDK has been able to prove its resilience.
TDK is a comprehensive manufacturer of electronic components with a wide-ranging portfolio of products, including passive components and sensors, HDD magnetic heads, magnets, batteries, and power supplies. The diversity of this portfolio demonstrated its worth during the current global crisis. Worsening relations between the U.S. and China and the spread of COVID-19 have had a direct impact on the automotive and industrial equipment markets, resulting in a significant shrinking in demand, primarily for passive components. Meanwhile, the ICT market remains strong, driven mainly by demand for fifth-generation mobile communications system (5G), with lithium polymer batteries, high-frequency components, and other products shoring up results for the Company as a whole. We were particularly successful in capturing demand for lithium polymer batteries for notebook computers and tablets, driven by the global growth in telework.
TDK is moving forward to build a global governance structure based on a policy of “Empowerment and Transparency,” the goal of which is to motivate our employees by trusting and delegating authority to them. Our primary focus is on creating an autonomous, decentralized organization, rather than one where authority is centralized. The effectiveness of this kind of organizational structure became clear in the course of our response to the spread of COVID-19. When China was still in the early stages of the infection, we went through our local offices to understand the scope of the situation; by early January 2020 we had set up Corporate Crisis Management Headquarters. As the infection spread to other countries, we continued to keep tabs on the situation as it changed from moment to moment. Meanwhile, in 2019, we set up new Regional Headquarters in China, the U.S., and Europe as well as key Business Companies (BCs) to serve as pillars in the creation of an autonomous, decentralized organization. Their ability to come up with concrete countermeasures according to their respective circumstances led to our quickly getting the situation under control. And given the significant differences in systems and conditions from one country to the next, those countermeasures might have fallen behind if we had tried to orchestrate everything from Tokyo.
The response of our offices in China, which had experienced the severe acute respiratory syndrome (SARS) outbreak of 2003 and used those lessons to craft its pandemic countermeasures, was particularly swift and precise. Amperex Technology Limited (ATL), our core company in lithium polymer batteries, was able to minimize production slowdowns, resuming production at an early stage. Because our sites in China were quick to normalize operations, TDK was able to hang on even as the pandemic spread globally. Our management teams and employees in each region have my heartfelt gratitude.
Since the time I was appointed president, I have considered it my personal responsibility to our stakeholders to turn TDK into a company that responds flexibly to changes in both external and internal environments and continues to develop sustainably; to that end, we have pushed forward with a variety of reforms. My confidence in those efforts has deepened as we confirmed the solid resilience of the global and diverse, autonomous and decentralized organization that was created as part of those reforms.
An Autonomous, Decentralized Organization and the Strength of Diversity Demonstrate Their True Value
Value Creation 2020
TDK continues to follow a path tied in a direct line to the aspiration of our founder, Kenzo Saito, to contribute to the development of society, an aspiration embraced by our corporate motto: “Contribute to culture and industry through creativity.” In that spirit, we have contributed to society’s development by continually delivering on the requirements of each era. Today, our objective is to implement a cycle that makes the pursuit of Social Value a goal for all of our businesses and that, as a result, increases both Commercial Value and Asset Value and further creates Social Value.
Value Creation 2020, our Medium-Term Plan for fiscal 2019 through fiscal 2021, was launched once we had clarified this path to creating value. The plan sets forth targets for Commercial Value, at net sales of ¥1,650 billion and Asset Value, with an operating income ratio of 10% or more and a return on equity (ROE) of 14% or greater. The second year of the plan, ended March 2020, saw a decline in both sales and income due not only to external factors, such as worsening the U.S.–China relations and a global economic slowdown due to the spreading COVID-19 pandemic, but also internal factors such as a delay in profitability improvements in the sensor business which we had expanded through proactive investments in recent years and the magnet business.
Fiscal 2021 will see growing demand associated with the spread of telework as well as increased demand related to 5G. At the same time, we have been forced to estimate the outlook for other markets—primarily the automotive sector—more severely, and do not expect to meet the targets set out under the current Medium-Term Plan.
While we assume a difficult business environment in the short term, in the medium to long term we also have a strong sense that the possibilities for TDK have expanded. In the past, corporate management was seen as a trade-off between economic rationality and social rationality. However, with the U.N.’s adoption of its Sustainable Development Goals (SDGs) and the deepening discussion around sustainability, those two vectors have begun to point in the same direction. In 2019, the TDK Group formulated its Sustainability Vision, which pledges “Through its innovative core technologies and solutions, the Group advances the development of a sustainable society and champions well-being for all people.” In addition to economic and social rationalities, the spreading COVID-19 pandemic also brought into line the interests of investors, employees, society, and a variety of other stakeholders. This is more than just a shift to a “new normal” way of life. There is a call for solutions to the problems that threaten the very sustainability of mankind, whether shrinking and aging populations and growing urbanization in advanced countries, or the depletion of fossil fuels and food and water shortages elsewhere. Reforms are advancing in every industry through the use of 5G, AI, renewable energy, and other solutions, and the potential roles for electronic components, which support the evolution of technology, must be limitless.
A Strong Sense of Expanded Possibilities for Contributing to Solutions to Social Issues
Leveraging Our Strengths to Solve Social Issues
Magnetic technology has consistently remained TDK’s core competence, and we have continued to refine components useful in the efficient use of electric power, demonstrating our strength in the energy sector. Going forward, demands will intensify for solutions to environmental problems, and for realizing an energy-saving, decarbonized society. We believe we can contribute to an energy transformation (EX) through the use of lithium polymer batteries, high-efficiency power supplies, electronic components that reduce noise and heat, and sensors in the electric power generation, transmission, conversion, and storage sectors. Such components are not only essential for delivering power savings in electric vehicles (EVs), but can also be useful in wireless power transfer systems. They can also contribute to power savings and improved efficiency in power generation devices used in renewable energy. In lithium polymer batteries, where TDK is competitive, we are working to develop our mini cell applications for compact electronics and wearable devices, while expanding applications for power cells to drones, e-drives, and other devices. As the development of smart cities advances, we expect to see an increased demand for rechargeable batteries designed for use in residential energy storage systems that makes “time-shift use” of stored power possible. We are already working to develop demand among developers of energy storage systems.
In the society of the future, all types of data will be processed in cyberspace. Incorporated back into people’s lives, that data will help form a more efficient society. Such a system can only be achieved through the use of a set of technologies consisting of integrated circuits (ICs), responsible for data analysis and other algorithms; a vast number of sensors for capturing analog data; and actuators that serve to translate the data that comes back into physical motion. TDK, which has a world-leading portfolio of sensors, can leverage its strengths as a comprehensive manufacturer of electronic components to deepen its relationships with IC manufacturers, and in society’s digital transformation (DX), play the role of a “transducer,” connecting the physical work and algorithms. We believe our competitiveness can be demonstrated particularly in the area of advanced driving assistance systems (ADAS) and autonomous driving, which require the ability to sense and rapidly process vast amounts of data. We also expect to contribute to advancements in robotics and DX in the healthcare field, with efforts aimed at solving social issues such as shrinking and aging populations and associated workforce shortages and problems with medical and nursing care. 5G will be an important part of that future infrastructure. In the near future, small cell base stations are expected to represent a majority of the overall demand for base stations. TDK will contribute by providing low-temperature cofired ceramic (LTCC) devices that support the multi-antennas used in small cell base stations; high-frequency components; high-frequency compatible inductors; and compact, low-profile electronic components that utilize semiconductor embedded substrate (SESUB) technology.
I believe that to leverage TDK’s strengths toward “advancing the development of a sustainable society and championing well-being for all people” will also require us to transform ourselves.
TDK Will Contribute to Solving Energy and Environmental Problems, and to a More Efficient Society through the Use of Data
A Transformation That Contributes to Creating the Future
Constant improvements in Monozukuri (manufacturing excellence) centered around materials technology and process technology will continue to serve as the foundation for TDK’s sustained development, regardless of how times may change. In addition to our efforts over the past four years or so with Industry 4.0, the use of digital technology to visualize the manufacturing process, we have also pushed ahead with Monozukuri innovation in pursuit of zero-defect product quality. At the same time, by promoting rigorous energy-saving measures and a conversion to renewable energy, TDK will transform itself into an energy eco-friendly company.
An important point in our growth strategy is how quickly and precisely we can sense society’s emerging demands and respond to them by delivering value in a timely fashion. To do that, we need to strengthen the antennas we have trained on detecting the needs of society and our customers. We have captured a large share of the global markets for HDD magnetic heads and lithium polymer batteries. As we can gain opportunities to develop cutting-edge products, our extremely sensitive antennas are focused on keeping us ahead in our understanding of trends in technology and customer needs. This in turn leads to our ability to achieve the time to market, quality, and volume needed to respond more quickly to customer requests. To ensure these strengths are expanded to encompass all of our businesses, we are working across the entire TDK Group to strengthen our digital-driven global marketing and global R&D functions as we thoroughly enhance management efficiency.
In addition to building a global governance structure, we will also continue to further enhance our strengths in diversity, discovering and cultivating talent across the world, and promoting a global human resource strategy that works toward optimal allocation of talent across nationalities and business units.
Strengthening the Antennas We Have Trained on Quickly and Precisely Sensing Society’s Needs
The other day, the question of what would have happened if this pandemic had occurred 20 years ago became a topic of discussion at TDK. Twenty years ago was right around the time I was posted to our factory in Europe. I heard from someone at the time that in the future, the age of internet shopping would arrive. This was when internet service for the home was just becoming more available, and I remember thinking, “Why would I have to do my shopping on the internet?” And yet here we are, 20 years later, with broadband connectivity, widespread use of smartphones, vast amounts of data being processed in the cloud, and AI performance evolving at an accelerated pace. I myself hold meetings online, purchase daily necessities on the internet, and order meals via smartphone apps. If the pandemic had occurred 20 years ago, I think we all would have been at a loss for what to do. I am amazed at the evolution of technology over the past two decades, and at its power.
TDK has also transformed itself significantly over the past 20 years. Neglecting that self-transformation, however, there may be risks that we completely lose competitive advantage just as convention-defying technologies appear. That is why the TDK Group will continue moving forward as one, maintaining a sense of crisis, pursuing technology’s possibilities, and working toward a sustainable society and TDK’s own enduring growth.
TDK, Pursuing Technology’s Unlimited Possibilities
President & CEO