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The electronics market in fiscal 2010 entered a moderate recovery after bottoming out at the end of the previous fiscal year following a large contraction in the latter half of that year. The digital home appliance field was defined by increasing polarization in products. On one hand we saw the continuation of a trend whereby growing demand for lower-priced products spurred price-based competition, which in turn further stimulated demand. But we also saw high-performance products such as smart phones record striking growth even amid the economic stagnation. In the auto industry, another field that is increasingly important to us, demand rose for hybrid vehicles amid the pursuit of even better fuel efficiency, while competition to develop electric vehicles also intensified. Investment in wind power generation and other renewable energies also increased in a bid to effectively utilize environmentally friendly natural energy.
In this business environment, orders and sales of the TDK Group’s products continued to increase, tracking recovering market conditions. Our consolidated net sales rose 11.2% year on year to ¥808,858 million as a result. This improved sales performance, coupled with considerable benefits yielded by structural reforms initiated in fiscal 2009, enabled us to return to profitability in fiscal 2010. We posted operating income of ¥25,774 million, reversing a loss of ¥54,305 million, and consolidated net income attributable to TDK Corp. of ¥13,520 million, a turnaround from a net loss of ¥63,160 million in the previous fiscal year.
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We may have turned in a much improved performance in the past fiscal year, but we would not say we are overjoyed. Even though it is recovering, the electronics industry still has not returned to the levels before the synchronized global recession. It will take several years for a complete market recovery. These sluggish market conditions have put into stark contrast for us the problem areas in our businesses and highlighted some important issues.
In the HDD head business, where we maintain an industry-leading position, we have responded well to market change and improved our earnings structure. The same cannot be said for our ceramic capacitor and certain other passive components businesses where we still have much work to do to improve profitability. These differences in ability to respond to changes in markets and the business environment have shown through in differences in performance among individual businesses.
The whole TDK Group must answer some important questions. For example:
- Has progress been made improving the cost of sales ratio?
- Has progress been made improving productivity and production efficiency?
- Have new products been launched as planned?
- Are manufacturing operations able to cope sufficiently with changes in demand?
- Have we improved operations sufficiently that we can prevail over the competition in an environment where foreign currency volatility is high and the rising yen has had a significant impact?
In addition to questions like these, we need to look at our investment efficiency.
- Our total assets have increased because of substantial capital investments and corporate acquisitions in the past. But we still have not achieved sales and earnings commensurate with the size of our assets. This is an issue to be tackled.
If we analyze our fiscal 2010 performance in this way, there are more than a few areas where we have room for improvement. This is why I said earlier we cannot be satisfied with our return to profitability. There is more work to be done.
We have set some specific management indicators to measure our progress going forward: lowering the breakeven point further to strengthen our profit structure; continuing to shorten the production lead time to reduce inventories; improving indicators of investment efficiency such as the fixed asset turnover ratio and total asset turnover ratio; and reducing the ratio of selling, general and administrative expenses to net sales.
We must also tighten our focus on key growth fields—the environment, energy, communications and automobiles—to create growth drivers. Moreover, we must strengthen our lineup of products for the industrial machinery field rather than just focusing on the digital home appliances field as in the past. We will set numerical targets and deadlines for making concrete progress with these and other challenges. We are determined to act swiftly to further improve our earnings structure and create operations that can match and prevail against rival companies.
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In October 2009, Tokyo Institute of Technology and TDK were honored by The Institute of Electrical and Electronics Engineers, Inc. (IEEE) with the grant of IEEE Milestones for the invention of ferrite materials and their applications. The magnetic material ferrite has contributed to the advancement of electronics through TDK’s commercialization of applications. Even today, almost 80 years after it was discovered, ferrite is still highly valued for helping spawn various new products and technologies.
TDK was established as the world’s first company to commercialize ferrite. Since its establishment, TDK has always valued inventiveness and this spirit remains a hallmark of our company. The development of materials, in particular, is one of TDK’s underlying strengths and today, more than 75 years after our foundation, we continue to recognize the important role of this core technology in raising TDK’s corporate value. Ferrite is used in the ferrite cores of inductive devices, which serve as transformers in power supplies. In this way, ferrite is an important material in our components business that greatly affects the performance of other products. Dielectric materials is another area we are developing. By marrying our key materials technologies with process and evaluation and simulation technologies, we are determined to continue developing and launching distinctive products that dovetail with market needs.
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The mission entrusted to us as management is to maximize enterprise value. In other words, management’s duty is to create value through our electronic components businesses to sustain growth and deliver this value to shareholders and all other stakeholders. This important responsibility is embodied in our founding spirit as the imperative “Contribute to culture and industry through creativity.”
We will continue to forge ahead and grow without forgetting what it is that powers TDK. We will continue to deliver new value that is true to our founding spirit.
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June 2010
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Hajime Sawabe
Chairman
Takehiro Kamigama
President and CEO
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