Tdk Corporation Business Information, Profile, and History

Company Perspectives:

TDK was established in 1935 as the world's first company to commercialize a magnetic material called ferrite. In the ensuing years, TDK has conducted research and development programs in ferrite and a variety of other electronic materials and components. This drive was based on the company's founding spirit of "contribute to culture and industry through creativity."

Today, we continue to deliver innovative products that are tuned precisely to our customers' needs. In doing so, we leverage a combination of know-how and process technology refined over years of specialization in electronic materials.

History of Tdk Corporation

TDK Corporation is best-known as one of the world's leading makers of recording media and systems, including high-quality audio and videotape, CD-R and CD-RW discs and drives, minidiscs, and rewritable DVD discs. Recording media and systems, however, account for only about one-quarter of the company's revenues. In fiscal 2002, electronic materials generated about 28 percent of sales; these included multilayer chip capacitors and ferrite cores and magnets. Another 18 percent of sales came from electronic devices, such as inductive devices, high-frequency components, and power supplies. Generating more than one-quarter of 2002 revenues were recording devices, with the main product in this sector being magnetic recording heads used in computer hard disk drives. Semiconductors, including those used in local area network devices, set-top boxes, and modems, accounted for just over 3 percent of 2002 sales. TDK's research and development efforts have been responsible for many discoveries in the application of magnetic materials over the years, and the company continues to drive the cutting edge of this technology in the 21st century.

Originated As a Marketer of Ferrite Technology

The success of TDK parallels the commercial development of a remarkably versatile material known as ferrite, a magnetic material with ceramic properties. Ferrite is composed of ferric oxide and any of a number of other metallic oxides, but usually zinc. Ferrite can be produced in several variations, each with somewhat different properties, and it can be categorized in two groups: hard and soft. Hard ferrite can be easily and permanently magnetized. Soft ferrite, on the other hand, does not stay magnetized for any great length of time but has other properties that make it suitable for many electronics applications. In the 1990s TDK supplied about half of the world's ferrite.

Ferrite was invented in 1933 by two Japanese scientists, Dr. Yogoro Kato and Dr. Takeshi Takei, at the Tokyo Institute of Technology. Two years later a man named Kenzo Saito founded TDK Corporation (originally known as Tokyo Denkikagaku Kogyo K.K., or TDK Electronics Company, Ltd.) to market the scientists' discovery. Saito had been searching for a manufacturing business that he could establish in his hometown, which was wholly dependent on agriculture. When Kato and Saito met by chance, each was impressed by the other, and soon Kato granted Saito the use of the ferrite technology he and Takei had developed.

TDK's first application was a soft ferrite product, marketed as an "oxide core" and employed in transformers and coils. The demand for ferrite was very limited at this time, however, and TDK's first years were hard. But as the number of electrical appliances in the world increased, demand for TDK's ferrite cores increased dramatically. Early in its history, TDK made research and development a priority by exploring the properties of ferrite and finding new ways to employ it. Soon, the use of ferrite cores became widespread in consumer electronic products such as radios and televisions, markets that grew considerably during the 1940s and 1950s. Saito left TDK in 1946 and later became a member of the Diet.

Diversifying Manufacturing and Expanding Overseas: 1950s-60s

Eventually TDK branched into the manufacture of materials other than ferrite. In 1951 the company began to produce ceramic capacitors. These components are used to store electrical energy, inhibit the flow of direct current, or facilitate the flow of alternating current, and are widely used in the production of electronic devices. Establishing itself as a key components manufacturer, TDK would benefit as the Japanese electronics industry grew.

In 1952 TDK introduced its first magnetic recording tape. TDK's line of recording tape eventually became the industry standard: at one point it accounted for half of the company's sales. In Japan TDK led the development of recording tape, becoming the first domestic manufacturer of audiocassettes in 1966. Two years later the company defied skeptics when it produced the world's first high-fidelity cassettes, marketed by TDK as Super Dynamic (SD) tape. Meanwhile, a TDK researcher named Yasuo Imaoka was looking for a material that could be used to replace chromium dioxide in video and audiotapes. Chromium dioxide, while offering excellent sound quality, is rare and expensive. Imaoka and his team came up with a process that combined ferric oxide with metal cobalt. The resulting material was named Avilyn, and it had a greater coercivity--a measure of magnetic substances--than chromium dioxide. Avilyn videotapes hit the market in 1973. The formula was soon improved by using cobalt hydroxide instead of metal cobalt, and the resulting Super Avilyn audiotapes revolutionized the industry when TDK unveiled its SA line, the first nonchrome high-bias tape, in 1975. In 1985 the Japanese Council of Industrial Patents named Avilyn as one of the country's top 53 inventions of the century.

As TDK developed technological innovations, its marketing strength also improved. The company entered foreign markets as early as 1959, opening a representative office in New York City. TDK opened a second American office in Los Angeles four years later, and TDK Electronics Corporation, the first overseas subsidiary, was established in New York in 1965. TDK's international operations grew extensively during the late 1960s and the 1970s. In 1968, TDK set up a subsidiary in Taiwan to manufacture ferrite cores, ceramic capacitors, and coil components. Over the course of the next ten years, TDK established subsidiaries in West Germany, Hong Kong, Great Britain, Brazil, Korea, Mexico, the United States, Singapore, and Australia. To ease trade imbalances and to insulate the company from currency fluctuations, TDK set up manufacturing facilities in many of these countries. TDK or its subsidiaries began producing magnetic heads in the United States in 1972 and audiotape a year later, ferrite cores in Korea in 1973, ferrite magnets in Mexico in 1974, ferrite cores in Brazil in 1979, and videotape in the United States in 1980. By the mid-1980s nearly half of TDK's business was generated outside of Japan. In the meantime, TDK went public in 1961 with a listing on the Tokyo Stock Exchange.

VCRs Spur Tremendous Growth

In the mid-1970s TDK's already impressive growth rate took off for a number of reasons. Technological developments in consumer electronics created new demand for the company's expertise in ferrite and other materials. More sensitive audio equipment created strong demand for TDK's SA tapes, and the introduction of videocassette recorders (VCRs) to the consumer market created new demand for both the software (videotapes) and hardware (magnetic tape heads and other components) that TDK was capable of producing. The company's sales went through the roof as the videocassette market expanded 60 percent each year in the late 1970s.

Videocassettes and audiocassettes made up half of TDK's sales in the early 1980s. In 1983, however, an oversupply of videotapes sent prices into a downward spiral. While TDK's audiotapes sales continued to improve, revenue from videotape declined even though total volume increased. Just as the videotape crunch was at its worst, Yutaka Otoshi, the former chief of the tapes division, took over as TDK president and CEO. Otoshi increased TDK's research and development budget from 3.4 percent to 5 percent of sales to ensure the company's technological edge. New products such as the compact 8mm camcorders and players and recordable optical videodiscs were expected to give a boost to the market. Nonetheless, Otoshi focused on expanding TDK's nontape business. As he told Business Week in 1983, "we have never thought it was a good idea to concentrate too much on one product." Also in 1983, the company changed its name to TDK Corporation.

R&D Successes in the 1980s

In 1984 TDK launched its Components Engineering Laboratory (CEL) in Los Angeles. At this lab TDK's researchers worked with marketing personnel to develop custom prototypes of transformers, microwave products, and other components for use by American customers. In addition to customization, the new lab reduced the time required to go from product development to full-scale production. TDK's research efforts also resulted in the development of a number of new products in the 1980s. The company made breakthroughs in the development of thin-film heads for increased recording sensitivity, in multilayer hybrid circuits that allow equalization in headphone cassette players to be performed in one-third the usual space, and in sensor technology.

Another area in which TDK excelled in the 1980s was the field of anechoic chambers--rooms lined with a material that absorbs radiowaves. Anechoic chambers are used to measure the electromagnetic emission of electronic products and also a product's vulnerability to interference from such emissions. TDK's success with anechoic chambers grew out of its experience with microwave absorption. The company first began research in that field in 1964 and by 1968 had marketed its first ferrite-based microwave absorbers. The popularity of microwave ovens, which use a ferrite and rubber compound to keep the cooking process inside the oven, bolstered TDK's bottom line. In 1975 the company applied its expertise in microwave absorption to anechoic chambers, and in the 1980s, as demand for these facilities grew on the back of a booming electronics industry, TDK became a major force in the field.

In 1987 the company embarked on a joint venture with the Allen-Bradley Company, of the United States, to produce motor magnets for the automobile industry. Allen-Bradley/TDK Magnetics began production at a plant in Oklahoma in April of that year. TDK benefited from its partner's longstanding relationship with American automakers, and Allen-Bradley benefited from TDK's magnetics expertise.

The late 1980s also saw the miniaturization of and increased demand for higher-density circuits and components. Manufacturers of these products required extremely precise equipment for their production facilities. TDK's Avimount and Avisert automated assembly equipment was in greater demand as a result. Sales in 1988 were up 25 percent over the previous year and were expected to continue to rise.

TDK's focus on broadening its nontape products was successful; by 1988 the nontape sector accounted for 64 percent of the company's total sales. But TDK did not neglect its recording-media development. TDK's floppy disks, first produced in 1982, garnered a respectable market share partly based on the company's excellent reputation in audio and video recording media. In 1987 the company introduced digital audio tape (DAT)--tapes able to play and record music digitally, like compact discs--in Japan and prepared to enter foreign markets as soon as copyright problems were settled. In 1988, it introduced a top-of-the-line videotape called Super Strong, a new product that allowed TDK to raise prices and still maintain market share.

TDK continued to grow on its own and make acquisitions when appropriate. In 1988 the company acquired Display Components Inc. (Discom), of Westford, Massachusetts. The purchase allowed Discom access to TDK's advanced production techniques while TDK received Discom's state-of-the-art magnetic field technology.

Overseas Production and Increasing R&D: Early to Mid-1990s

In 1989 TDK purchased a large American manufacturer of mixed-signal integrated circuits, Silicon Systems Inc. (SSI), for $200 million, further diversifying its range of products. SSI proved to be a problematic acquisition for TDK, however. SSI struggled during its first few years under TDK, even after a $100-million-plus infusion from the parent to help SSI beef up its U.S. production. By the mid-1990s, even this had not provided SSI with the capacity it needed to compete with the giants of the semiconductor industry. Rather than sinking more money into the troubled firm, TDK decided to sell SSI in 1996 and found a willing buyer among these same giants, namely Texas Instruments Incorporated. Terms were $575 million in cash plus a long-term note that could bring TDK another $50 million in contingent payments. This sale did not mark TDK's complete withdrawal from semiconductor-related areas, however. Not included in the deal were SSI's Communications Products Division and TDK Systems Division, leaving TDK with such products as PC cards and integrated circuits for telecommunications. These were not insignificant, as evidenced particularly by TDK's success in the area of fax/modem PC cards, a product that experienced explosive sales growth in the mid-1990s as the Internet and online services became everyday business and personal tools.

In the early to mid-1990s, TDK had to contend with a glut in the videotape market and the consequences of an extremely strong yen, both of which depressed company sales, and consequently earnings. TDK moved aggressively to cut costs, consolidating Japanese production of blank audio and videotapes in one factory in 1993. To mitigate the effects of the strong yen, TDK shifted much of its production overseas. Ferrite products began to be manufactured in Dalian, China, in 1993. By 1995, more than half of TDK's audio and videotapes were produced outside Japan--in Luxembourg, the United States, and Thailand. In May 1996, TDK announced a plan to shift all its floppy disk manufacturing overseas, some to a California subsidiary, some to several Southeast Asian companies. In the fall of 1996, a new plant in Hungary began manufacturing transformers, ferrite cores, and other components.

Under the guidance of President Hiroshi Sato, TDK further bolstered R&D by spending 6 percent of overall sales on new product development. One product area targeted was that of ceramic filters for mobile telecommunications, another high-growth sector. Overall, R&D was directed to make TDK even less dependent on the mature areas of magnetic products and tapes. An example of the company's search for nontape revenue was the joint venture with Duracell International Inc. announced in early 1996, whereby the two companies would jointly develop and manufacture ion electrode sets, a key component in the increasingly popular lithium-ion rechargeable battery.

The production shifts and emphasis on new products began to pay off in 1996, with TDK posting healthy increases of 11.6 percent in net sales and 41.1 percent in operating profit over 1995, which represented the best consolidated results in five years. The company cited electronic components for computers, home electronics, and telecommunications products as the main contributors to these gains. Continued strong sales in overseas markets and the yen's weakness against the dollar sent sales and profits soaring still higher in fiscal 1997. Revenues increased another 15 percent, and operating profits surged by nearly 43 percent.

Turn of the Millennium: Acquisitions, GMR Heads, and a Technology Slump

Continuing its policy of making strategic acquisitions, TDK acquired Grey Cell Systems Limited in September 1997. Based in the United Kingdom, Grey Cell specialized in PC card and software-based data communications products. Grey Cell was later renamed TDK Systems Europe Ltd. Having produced CD-Rs (rewritable compact discs) for the first time in 1993, TDK maintained its position on the cutting edge of recording media by launching production of DVD-R discs in April 1998, well in advance of any sizable market for the product. In June 1998 Sato retired from his position as president of TDK and was succeeded by Hajime Sawabe.

By the late 1990s one of TDK's key product areas was that of magnetoresistive recording heads, which are a key component of computer disk drives. TDK was one of the leading makers of an advanced version of these heads that were known as giant magnetoresistive (GMR) heads, and much of the company's profits were derived from the sale of GMR heads. In March 2000 TDK bolstered its position in this sector with the purchase of Headway Technologies, Inc. for about $122 million. Based in Milpitas, California, and founded in 1994, Headway produced a variety of recording heads but was particularly strong in the area of GMR heads. The company reported net income of $1 million on sales of $160 million for 1999.

Despite TDK's commitment to remaining on the cutting edge of technological development and its selected use of acquisitions and strategic alliances as growth generators, profits came under increasing pressure around the turn of the millennium as the Japanese economy continued to struggle. One response to this profit squeeze was a restructuring of the product lines. Products were now arranged into five sectors: electronic materials, electronic devices, recording devices, semiconductors, and recording media. Another strategy was diversification, and TDK in 2000 moved beyond its traditional position as provider of recording media by branching out into the manufacture of related hardware devices to be sold to consumers. Early in 2000 the company began selling TDK brand CD-R/RW drives for personal computers. In November of that year the company introduced its first audio CD recorder, and in January 2001 TDK began selling computer speakers. Meanwhile, in December 2000, TDK paid $26 million for U.S. semiconductor maker Sierra Research and Technology Inc. Established in 1993, Sierra specialized in the design of CMOS (complementary metal-oxide semiconductor) products for networking and data communications applications.

By late 2001 TDK was forced to launch a major restructuring effort as the technology market entered a severe slump precipitated by a slowdown in the U.S. economy and by a global downturn in information technology investment. Inventories for a broad range of electronic components soared as the predictions for worldwide demand for mobile phones and personal computers proved to be far too optimistic. The huge inventories placed downward pressure on prices, cutting into revenues. In October 2001 TDK responded by announcing that it would cut 8,800 jobs, or 20 percent of its workforce by March 2004, with 2,300 of the job cuts earmarked for the company's domestic operations. Two manufacturing plants in Japan and one in Germany were closed, and several subsidiaries were consolidated to improve efficiencies. The number of jobs to be eliminated was increased by 400 in February 2002. Restructuring charges for the fiscal year ending in March 2002 totaled ¥25.87 billion ($194.5 million). This led to TDK's first net loss since it began reporting consolidated earnings results in 1975. For fiscal 2002, the company lost ¥25.77 billion ($193.8 million) on net sales of ¥575.03 billion ($4.32 billion). The sales figure represented a 16.7 percent decline from the previous year, despite a further weakening in the yen. More job cuts and plant closures were likely as TDK hoped to return to profitability by fiscal 2003.

Principal Subsidiaries: TDK Akita Manufacturing Co., Ltd.; TKD-MCC Co., Ltd.; TDK Shonai Manufacturing Co., Ltd.; Iida TDK Co., Ltd; Tsuruoka TDK Co., Ltd.; Yashima TDK Co., Ltd.; Ujo TDK Co., Ltd.; TDK Service Co., Ltd.; TDK Design Core Co., Ltd.; Iwaki Kogyo Co., Ltd.; Yuri TDK Co., Ltd.; TDK Core Co., Ltd.; TDK Distributor Co., Ltd.; Honjo TDK Co., Ltd.; Kofu TDK Co., Ltd.; Toso TDK Co., Ltd.; TDK (Australia) Pty. Ltd.; TDK do Brasil Ind. e Com. Ltda. (Brazil); TDK Dalian Corporation (China); TDK (Tianjin) Co., Ltd. (China); TDK (Shanghai) International Trading Co., Ltd. (China); Qingdao TDK Electronics Co., Ltd. (China); TDK (Guangzhou) Co., Ltd. (China); TDK Xiamen Co., Ltd. (China); TDK Recording Media France SARL; TDK Electronics Europe GmbH (Germany); TDK Hong Kong Co., Ltd.; TDK Recording Media (Hong Kong) Co., Ltd.; SAE Magnetics (H.K.) Ltd. (Hong Kong); TDK Italia S.p.A. (Italy); Korea TDK Co., Ltd. (99.4%); TDK Recording Media Europe S.A. (Luxembourg); TDK (Malaysia) Sdn. Bhd.; TDK Softec (M) Sdn. Bhd. (Malaysia); TDK de Mexico S.A. de C.V.; TDK Philippines Corporation; TDK Polska Sp. z.o.o. (Poland); TDK Singapore (Pte) Ltd.; TDK Scandinavia A.B. (Sweden); TDK Taiwan Corporation (80.95%); TDK (Thailand) Co., Ltd.; TDK UK Limited; TDK Systems Europe Ltd. (U.K.); TDK U.S.A. Corporation; TDK Electronics Corporation (U.S.A.); TDK Online Services Corporation (U.S.A.); TDK Corporation of America (U.S.A.); TDK Components U.S.A., Inc.; Headway Technologies, Inc. (U.S.A.); Husko Inc. (U.S.A.); Saki Magnetics, Inc. (U.S.A.); TDK Ferrites Corporation (U.S.A.); TDK Texas Corporation (U.S.A.); TDK Semiconductor Corporation (U.S.A.); TDK RF Solutions Inc. (U.S.A.).

Principal Divisions: Electronic Components Business Group; Data Storage Components Business Group; Recording Media & Systems Business Group; Semiconductors Division.

Principal Competitors: Imation Corp.; Murata Manufacturing Co., Ltd.; Kyocera Corporation; Pioneer Corporation; Fuji Photo Film Co., Ltd.; Sony Corporation; Hitachi, Ltd.; Vishay Intertechnology, Inc.; AVX Corporation; EPCOS AG; Read-Rite Corporation.

Chronology

• Key Dates:
• 1935: Kenzo Saito founds Tokyo Denkikagaku Kogyo K.K. (TDK Electronics Company, Ltd.) to market ferrite cores.
• 1951: Company diversifies, launching production of ceramic capacitors.
• 1952: TDK begins production of magnetic recording tape.
• 1959: Overseas expansion begins with the opening of an office in New York City.
• 1961: Company goes public with a listing on the Tokyo Stock Exchange.
• 1965: TDK Electronics Corporation, the first overseas subsidiary, is established in New York.
• 1966: Production of audiocassettes begins.
• 1968: Company debuts the world's first high-fidelity cassettes, marketed as Super Dynamic tape.
• 1973: Avilyn videotapes are introduced.
• 1975: TDK launches Super Avilyn audiotapes, the first nonchrome high-bias tape.
• 1982: Floppy disks are produced for the first time.
• 1983: Company's name is changed to TDK Corporation.
• 1993: Production of CD-R discs commences.
• 2000: TDK acquires Headway Technologies, Inc., producer of recording heads.
• 2001: Slumping technology market leads the company to announce that it will cut 8,800 jobs, or 20 percent of its workforce, by March 2004.
• 2002: Company posts its first net loss since it began reporting consolidated earnings results in 1975.