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    [ 1st Quarter of fiscal 2016 Performance Briefing ]Q&A

    Performance Briefing Year | TDK
    Q1. I'd like to ask about inventories. I see that as of the end of June inventories had increased by 15.5 billion yen compared to the end of March. Please give some details of the product breakdown of the increase.
    A1. If we look at inventories in comparison to the level at the end of last year, they have increased a little more than 10 billion yen due partly to the weakening of the yen. We have also added inventories of SAW products and rechargeable batteries in anticipation of growing sales to smartphone makers from the second quarter.
    Q2. I read about a slowdown caused by a macroeconomic slump, which has mainly affected U.S. high-tech firms. And makers of semiconductor device manufacturing equipment have revised down their guidance. These circumstances I think indicate that the segments targeting such industrial equipment may be slowing down. Can you talk about the situation of related markets?
    A2. I think industrial equipment-related segments may remain a little weak for some time, but in terms of the ICT segment, we do expect U.S. customers to start to release new products, so we think we can win additional orders. China presents a mixed picture because the situation varies from customer to customer, but overall, there hasn't been a major change in our order situation. In the automobile segment, production remains slow including operations targeting eco-friendly vehicles in Japan, but we are seeing an increase in parts related to advanced driver assistance systems (ADAS), so we don't see any change in the overall order situation for the global automobile market. Orders remain brisk for strong products, and we are planning to boost their production.
    Q3. Please describe first-quarter performance in comparison to your initial plan. I think performance varied from segment to segment, and the weakening yen affected them differently, but I would like to know how you perceive the overall situation.
    A3. As for HDD heads, there was an abrupt slowdown, which means that there was admittedly a large gap compared to our initial assumptions. That said, passive components, especially high-frequency parts, exceeded expectations and made up for this gap, so overall performance was more or less in line with the target. For the second quarter, we expect a recovery in HDD heads and a production increase for passive components and rechargeable batteries, so we think we'll be able to achieve our initial target figure of 95 billion yen. However, as our yen assumption remains unchanged at 115 yen to the dollar, we may end up exceeding it, based on the current yen rates.
    Q4. Sales of passive components have grown by 8 percent from the fourth to the first quarter, and you expect a further increase of 3 to 4 percent from the first quarter to the second quarter. Please explain the product-by-product breakdown of your passive component estimates.
    A4. We assume a sales increase of 3 to 4 percent for overall passive components from the first quarter to the second quarter, and we expect a similar range of increase for all individual passive component products. But for high-frequency components, which include discrete parts and modular parts, we are expecting discrete parts will be a little stronger in growth.
    Q5. I'm thinking that, within discrete products, those for PA modules will increase in the second quarter. Please give your view on this.
    A5. As you pointed out, we expect demand for module-use discrete products for PA manufacturers to increase in the second quarter.
    Q6. So exports to China are likely to decrease somewhat due to production adjustment while orders from PA manufacturers are likely to increase, is that correct?
    A6. That's correct. Specifically, we expect orders from U.S. PA manufacturers in particular will grow.
    Q7. Am I correct in thinking that shipments of HDD heads declined significantly from the fourth quarter to the first quarter but production decreased along with this shipment fall, and so production will come back up in the second quarter as shipments recover?
    A7. Yes. You can think of it that way.
    Q8. Please detail expected changes in the shipment numbers of HDD heads from the first to second quarters.
    A8. We expect the shipment index will recover from 76 to 90 in the second quarter. Needless to say, we have established a strong presence in high-end nearline products, so we expect this area will recover. In the first quarter, the overall HDD market slowed down significantly and laptop-use HDDs decreased, led by 2.5-inch products. So we think 2.5-inch products will also recover over the second quarter, not just high-end nearline products.
    Q9. I see HDD heads fell a little more steeply in the first quarter compared to the overall HDD market. Can you please tell us what you think was the background to this.
    A9. Our HDD-market unit figures are calculated based on shipment figures. And production-based figures are affected by changes in the production plans of manufacturers, which means our HDD heads are affected by their production adjustments. That's the first factor.
    The second factor is the impact from 2.5 HDDs. There was a significant decrease in demand for 2.5 inch products in the market. We had been weaning ourselves off our reliance on 2.5-inch products while expanding products for high-end nearline HDDs, but 2.5 inch HDDs still represent a significant portion. So the second factor is the impact from the relatively large fall in 2.5-inch products compared to the overall HDD market. The third factor is HDD head production at HDD manufacturers. As demand decreases for overall HDD products, HDD makers also try to maintain their in-house production of HDD heads. In particular, it's been four to five years since heads for 2.5-inch 500GB and 3.5-inch 1TB HDDs were shipped. During this period, we continued to develop products, and offered products that enhance productivity at HDD makers, including Generation 1, Generation 2 and Generation 3, but you can never get around an absolute decline in numbers, so this actually has had a rather large impact.
    Q10. Please talk about your unit price assumptions for HDD heads in the second quarter.
    A10. As products with a long life, which represent a large percentage of production numbers, have declined in price to a degree, we have assumed prices won't drop much any more. That said, prices of drives have significantly declined and we feel strong pressure for price cuts from our customers. I can't give you specific figures, but we have incorporated realistic factors in our plans in an appropriate manner.
    Q11. I think demand for nearline HDDs is basically very strong, but it has decreased amid a recent market adjustment. Do you think the nearline HDD market will return to the growth trend initially expected in the second half of this year? Please give your view on the nearline market.
    A11. The market size for nearline HDDs has remained at about 10 million units per quarter since last year. And the size of HDDs shipping out from factories has grown gradually from 3TB to 4TB, and then to 6TB. We think the nearline HDD market will gradually recover toward the second half of this year as new HDD products are introduced. As our HDD heads have been approved by our customers for nearline products, we expect they'll be used in their new HDD products.
    Q12. This time you revised the sales figure for the HDD market to 490 million units, but I think there is an ongoing increase in the unit numbers for nearline products. Please talk about your estimate of the number of HDD heads this fiscal year, against this figure.
    A12. We estimate the number of HDD heads for the current fiscal year at 1.65 billion units based on an estimate of 490 million units of HDD products. This estimate is down about 100 million units from our initial estimate of 1.75 billion units at the beginning of the fiscal year. At this point, our assumption is about 3.4 units per HDD product. This figure was about 3.2 units in the last fiscal year. This is due partly to the decrease in 2.5-inch products, but nearline HDDs, which have more platters, are increasing, and that has gradually increased the per-HDD figure to 3.4.
    Q13. I'd like to ask you about lithium polymer batteries (rechargeable batteries). I see their exports are growing in areas other than North America, including China and South Korea. I presume this expansion is due to the growing use of these batteries in thin smartphone products. My question is, what is your view going forward? For example, do you see the growth in lithium polymer batteries as a temporary spike or do you think it will continue into the medium term?
    A13. I think lithium polymer batteries are characterized by their ability to adapt to unusual shapes, such as for thin products and 3D batteries. Therefore, we think their use will steadily grow in areas such as mobile devices, which are increasingly being made thinner. The batteries are also increasingly used in new types of products such as drones, so we think we can expand their sales to a significant degree.
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