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TDK Corporation recently reported its earnings for the first quarter of fiscal year 2026, revealing a mixed financial performance. The company faced challenges from yen appreciation, impacting its net profit, while achieving growth in sales. Despite these hurdles, TDK’s stock showed resilience, with a minor decline of 0.77% in recent trading.
Key Takeaways
- TDK’s net sales increased by 3.3% year-over-year to ¥535.8 billion.
- Operating profit decreased by 2.5%, affected by currency fluctuations.
- Net profit fell significantly by 30.5%, highlighting the impact of yen appreciation.
- The stock price experienced a slight decrease, reflecting investor caution.
Company Performance
TDK Corporation’s Q1 performance highlighted the company’s ability to grow its sales despite facing a stronger yen, which negatively impacted profitability. The company’s focus on innovation and expanding its product lines in ICT and renewable energy markets contributed to the sales increase. However, the appreciation of the yen reduced sales and operating profit by ¥37.6 billion and ¥7.1 billion, respectively. This currency impact, coupled with a slowdown in the automotive market, led to a sharp decline in net profit.
Financial Highlights
- Revenue: ¥535.8 billion, up 3.3% year-over-year
- Operating Profit: ¥56.4 billion, down 2.5% year-over-year
- Net Profit: ¥41.5 billion, down 30.5% year-over-year
- Earnings per Share: ¥21.85
Outlook & Guidance
TDK provided a cautious outlook for the coming quarters, projecting modest growth in its key segments. The company expects a 0-3% increase in passive components and a more robust 12-15% growth in both sensor and energy applications. Exchange rate projections were set at ¥140/USD and ¥155/EUR, indicating potential continued challenges from currency fluctuations.
Executive Commentary
Tetsuji Yamanishi, TDK’s CFO, emphasized the global economic instability caused by trade tensions and geopolitical risks. He noted, "Due to intensifying trade frictions, increasing uncertainty over tariff policies, and heightened geopolitical risks in the Middle East, the global economy remained in an extremely unstable situation." Yamanishi also highlighted the company’s strategic focus on innovation and market adaptation, stating, "We have provided a range-based projection for the performance outlook."
Risks and Challenges
- Currency Fluctuations: Continued strength in the yen could further impact profitability.
- Trade Tensions: Ongoing trade frictions pose risks to global supply chains and demand.
- Automotive Market Slowdown: A decline in BEV demand could affect TDK’s sales.
- Geopolitical Risks: Instability in key regions may disrupt market dynamics.
- Tariff Policies: Uncertainty around tariffs could influence operational costs and pricing.
TDK Corporation remains focused on innovation and adapting to market changes, aiming to navigate the challenges posed by currency fluctuations and global economic uncertainties.
Full transcript - TDK Corp (6762) Q1 2026:
Moderator, TDK Corporation: As the time has come, we’d like to start the first quarter performance briefing of fiscal year March 2026 for TDK Corporation. Thank you very much. Participating despite your busy schedule, please allow me to introduce the participants. Senior Executive Vice President and CFO Tetsuji Yamanishi, Executive Vice President Shigeki Sato, Corporate Officer Fumio Sashida, Corporate Officer Takao Tsutsui. These are the participants today. Would like to give you the highlights of the first quarter of the fiscal year March 2026 results and give you the projections for the full year. After that we’ll go to Q and A. Overall, this will be a 60 minute meeting. The presentation they’re going to use today is posted on a website both for Japanese and English. Let’s start.
Hello, my name is Yamanishi. Thank you very much for taking time out of your busy schedules to attend a financial results briefing for the first quarter of the fiscal year ending March 2026. I will now explain the summary of our consolidated financial results regarding Q1 FY March 2026. Key points: due to intensifying trade frictions, increasing uncertainty over tariff policies, and heightened geopolitical risks in the Middle East, the global economy remained in an extremely unstable situation. Exchange rates showed a significant yen appreciation year on year, mainly against the US Dollar and the Euro. In the electronics market, which affects our business performance, production of smartphones among ICT related products remained steady compared with the same period of the previous year. Demand for nearline HDDs for data centers also continued to be firm.
On the other hand, in the industrial equipment market, overall capital investment demand remained sluggish, and in the automotive market, the slowdown in demand for BEVs continued, resulting in parts demand falling below our initial assumptions. Under such a business environment, by market segment, sales of small capacity batteries and sensors increased to the ICT market, and sales of HDD suspension assemblies increased significantly due to firm demand. In the HDD market, on the other hand, sales of passive components and sensors decreased to the automotive market due to slowdown in BEV demands. However, thanks to the recovery in parts demand for game consoles classified under the industrial equipment market, sales of rechargeable batteries and sensors increased. As a result, net sales for this quarter increased by 3.3% year on year.
Operating profit decreased by 2.5% year on year due to the significant appreciation of the yen and the decline in shipments of products for automotive applications. Next, I will go through Q1 FY March 2026 results including the impact of FX rate fluctuations against the US Dollar and other currencies: minus ¥37.6 billion in sales and minus ¥7.1 billion in operating profit. Net sales were ¥535.8 billion, up ¥16.9 billion, or 3.3%. Operating profit was ¥56.4 billion, down ¥1.5 billion or 2.5%. Profit before tax was ¥57.6 billion, down ¥11.9 billion or 17.3%. Also impacted by foreign exchange losses from the appreciation of the yen, net profit was ¥41.5 billion, down ¥18.2 billion or 30.5%. Due to foreign exchange losses and the absence of the tax expense reversal recorded in the previous year, earnings per share were ¥21.85.
Regarding foreign exchange sensitivity, as in the previous guidance, we estimate that a ¥1 change against the U.S. dollar has an impact of approximately ¥2 billion per year and against the euro approximately ¥0.3 billion per year. Next, I will explain the results by segment. First, in passive components, sales decreased mainly in the automotive market, with net sales ¥138.1 billion, down 3.4% year on year, and operating profit ¥6.4 billion, down 54.1% year on year. Ceramic capacitors and inductive devices, which have a high sales ratio to the automotive market, recorded lower sales and profits. Aluminum electrolytic capacitors and film capacitors, despite lower sales to the automotive market, posted higher sales and profits thanks to increased sales to the renewable energy market. High frequency components saw lower sales and profits due to reduced sales to both the ICT and industrial equipment markets.
Piezoelectric material products and circuit protection components also recorded lower sales and profits as sales to the ICT market declined. Next is the sensor application products segment. Net sales were ¥46.4 billion, up 5.3% year on year, and operating profit was ¥2.7 billion, returning to profitability from a loss in the previous year. For temperature and pressure sensors, sales decreased to the industrial equipment market, resulting in lower sales and profits in magnetic sensors, while TMR sensors posted higher sales for smartphones. Hall sensors recorded lower sales to the automotive market, leading to an overall decline in sales and profit for magnetic sensors. MEMS sensors achieved sales growth driven by increased microphone sales for the ICT market and higher motion sensor sales for the industrial equipment market, resulting in a significant improvement in profit for MEMS sensors as a whole.
Next, in the magnetic application products segment, net sales were ¥54.6 billion, flat year on year, while the operating profit was ¥6.3 billion, marking a significant increase in profit. In HDD heads and HDD suspension assemblies, sales for nearline applications increased, but overall sales were flat due to weaker demand for HDD heads. For PCs, however, profitability improved significantly thanks to a more favorable product mix. In magnets, sales declined due to lower demand in the automotive market, but profitability improved thanks to quality enhancements and cost reduction efforts. Next, in the energy application product segment, net sales were ¥285.5 billion, up 8.6% year on year, and operating profit was ¥55.4 billion, slightly higher than the previous year in rechargeable batteries.
Sales and profits increased, driven by higher sales volume of small capacity batteries to the ICT market as well as increased sales of small and medium capacity batteries to the industrial equipment market. In power supplies for industrial equipment, however, sales and profits decreased due to the absence of a significant recovery in demand for industrial equipment.
Next, I will explain the factors that cause changes in segment sales and operating profit from the fourth quarter of the previous fiscal year to the first quarter of the current fiscal year. First, in the passive component segment, net sales increased by 2.3%, ¥3.1 billion from the fourth quarter, and operating profit increased by ¥1.9 billion excluding the one-time expense of ¥11.3 billion that occurred in the fourth quarter. Ceramic capacitors saw increased sales to the automotive market, resulting in higher sales. Aluminum film capacitors saw a decrease in sales to the automotive market but an increase in sales to the renewable energy market, resulting in higher sales. Inductive devices saw sales increase in the automotive and industrial equipment markets but decreased in the ICT market, resulting in sales remaining largely flat.
Flat high frequency components saw sales increase due to a seasonal recovery in the ICT market, while piezoelectric and circuit protection components saw sales increase due to increased sales to the industrial equipment market, despite a decrease in profit due to the impact of the strong yen and the deterioration in the product mix of ceramic capacitors. Operating profit increased by ¥1.9 billion mainly due to the effects of structural reforms in high frequency components and overall revenue growth. Next, regarding sensor application products, net sales decreased by ¥100 million, 0.2%, remaining nearly flat, while operating profit increased by ¥2.5 billion excluding one-time expenses of ¥600 million incurred in the fourth quarter. Temperature and pressure sensors saw a slight increase in sales, but a deterioration in product mix led to a decrease in profit.
Magnetic sensors experienced a decline in sales and profit due to reduced sales of Hall sensors for the automotive market. However, an increase in sales of TMR sensors for smartphones resulted in flat sales and an increase in profit for magnetic sensors. Overall, MEMS sensors saw an increase in sales due to strong sales of MEMS microphones in addition to significantly improved profitability. MEMS motion sensors saw a decrease in sales but achieved an increase in profit due to the effects of structural reform implemented in the previous fourth quarter, resulting in a significant improvement in overall profitability for MEMS sensors and a reduction in losses. Next, in the magnetic application products segment, sales decreased by ¥3.7 billion while operating profit increased by ¥7 billion.
HDD heads saw a decrease in sales volume of approximately 12% due to the transition period for demand for nearline heads, a major product, resulting in a decline in sales. However, improved product mix and cost improvement through fixed cost efficiency led to an increase in operating profit, enabling the segment to maintain stable profitability. HDD suspension assemblies saw a 25% increase in sales volume due to increased demand for nearline applications, resulting in both higher sales and operating profit. Magnets saw a slight increase in sales, but profitability improved due to cost improvements and the sale of welfare facilities. Next, in the energy application products segment, sales increased by ¥5 billion, 1.8%, and operating profit increased by ¥17.6 billion, 46.6%. Sales of small capacity batteries for ICT applications increased, contributing to the increase in sales and significant increase in operating profit.
Power supplies for industrial equipment saw a decline in both sales and operating profit due to the slow recovery of demand, while EV power supplies also experienced a decrease in both sales and profit due to reduced demand for BEVs. Next, regarding the analysis of the ¥1.5 billion decrease in the operating profit, an increase of ¥26.2 billion was achieved due to the higher sales volume of secondary batteries, HDD head suspensions, and sensors. While rationalization and cost reduction measures contributed ¥4 billion, the effects of structural reforms, development in the previous fiscal year added ¥1.4 billion. Increased pressure to reduce selling prices resulted in a ¥15 billion decrease. SG&A expenses increased by ¥8.8 billion due to higher R&D expenses related to accelerating the development of new technologies and products.
In the secondary batteries segment, a decrease of ¥2.2 billion from the one-time revenue recorded in the previous year and a decrease of ¥7.1 billion due to the yen’s appreciation resulted in an overall decrease of ¥1.5 billion. Next, I will explain about the cash flow situation. In the first quarter, operating cash flow was ¥59 billion and investment cash flow was ¥62.9 billion, including the acquisition of companies related to the AI ecosystem. As a result, free cash flow was a negative ¥3.9 billion, but this was in line with expectations for the first quarter. Next, I will explain the segment by segment sales increase or decrease for the second quarter compared to the first quarter.
For the second quarter, we are forecasting the exchange rate of ¥140 per dollar, but for ease of comparison, we will explain the increase or decrease adjusted to the actual exchange rate of the first quarter. First, for passive components, we anticipate increased demand from the automotive and ICT markets and expect an increase in cell synthetum MLCCs, resulting in an overall increase of 0% to 3%. Sensor application products are targeted at the ICT market with magnetic sensors and MEMS microphones increasing due to seasonal factors. Temperature, pressure, and magnetic sensors are also increasing. For the automotive market, MEMS motion sensors are increasing for industrial equipment. Overall, we expect revenue to increase by 12% to 15%.
Next, in the magnetic application products segment, while we expect an approximately 8% increase in the nearline HDD production volume, we anticipate approximately a 20% increase in head sales volume and increase in suspension sales volume, resulting in an overall revenue increase of 10% to 13%. Finally, in the energy application products segment, we expect demand for smartphones to remain strong due to seasonal factors, resulting in an overall revenue increase of 12% to 15%. Finally, I will explain the full year projections for the fiscal year ending March 2026. At the time of the initial forecast announcement, it was extremely difficult to predict demand due to the U.S. Administration’s tariff policies, resulting in a highly uncertain outlook.
Therefore, for the production volume of major devices which serves as the basis for the forecast, we established two scenarios: the base scenario, which reflects initial assumptions made prior to the tariff measures, and a risk scenario that accounts for the potential reduction in demand for major devices in the U.S. due to tariff measures. Based on these two scenarios, we have provided a range-based projection for the performance outlook. As a result of revising the full year production volumes forecast for major devices at this point in time, we have decided not to change the base scenario performance and to maintain the figures announced at the beginning of the fiscal year. Given that there is no significant difference from the base scenario established at the beginning of the fiscal year, negotiations with various countries regarding tariff measures are still ongoing and the future demand outlook remains uncertain.
Therefore, we will maintain the risk scenario announced at the beginning of the fiscal year, but there is no change in the view that the base scenario represents the minimum level that should be achieved. The exchange rates for the second quarter and beyond remain unchanged from the beginning of the fiscal year, ¥140 per dollar and ¥155 per euro. Free cash flow and annual dividends also remain unchanged. Additionally, there are no changes to CapEx, depreciation, amortization expenses, or research and development expenses. Finally, we have two announcements. The English version of the TDK United Report 2025 is going to be published on the 8th of August. This report tells the story of how the TDK United team members are striving to enhance corporate value by aiming for fusion rather than integration. It will be available on TDK’s website, so please take a look.
One more thing, we will hold TDK Investor Day on September 1, so TDK United team members will introduce TDK strength in technical capabilities and human capital, which are TDK’s pre-financial capital, in the panel discussion format. This event will be broadcast live. This concludes my presentation. Thank you very much.
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