The Evolution of TDK
Wednesday, April 02, 2008SUSIE GHARIB: The Japanese company TDK became a household name in America when video cassette recorders invaded living rooms in the 1970s. By the early 1980s, video and audio cassettes were half of the company's sales. But as Lucy Craft reports in this corporate profile, when that market fell apart, TDK made the move to electronic components.
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: TDK is a world leader in components so small, most users will never see them. But without these products, modern life would be unimaginable, like ferrite and rare earth magnets, essential in car motors of all kinds. TDK spokesman Akira Fukuno says there are up to 600 magnets in a car today.
AKIRA FUKUNO, GEN. MANAGER, P.R., TDK CORPORATION: Power windows and the power seat and also, window washer, has some motors.
CRAFT: And some magnets.
FUKUNO: Yes, of course.
CRAFT: The company dominates the market for the tiny magnetic heads used in computer hard disk drives to record and read data. And it also leads the pack in capacitors and inductors, two more critical parts that make electronic appliances run. Take this cell phone -- to power its video and music player and a growing number of other functions, it requires nearly 300 chip capacitors. An automobile needs over three times that many. The tiniest capacitors, which store energy, are no larger than grains of salt. And when it comes to components, nano-sized products make for mega-sized margins. TDK Chairman and CEO Hajime Sawabe says component demand has nowhere to go but up.
TRANSLATION OF: HAJIME SAWABE, CHAIRMAN & CEO, TDK CORPORATION: There are a huge amount of products that are becoming increasingly electronic, especially cameras, office equipment and cars. Also, flat panel TVs are getting bigger; in the span of three years, TVs will use three times as many capacitors, for example. As products become more functional and versatile, they require a greater number of components, so we are unquestionably in a very advantageous position.
CRAFT: Japan's big electronics companies are in a funk nowadays, but here's the irony -- the companies that make the parts to go into those flat panel TVs, cell phones and laptops are on a roll, helping profit margins of 10 percent or more. That's more than three times what the likes of Sony and Matsushita are earning nowadays. One reason is that, while big electronics companies now are paying the price for over-diversification, companies like TDK have thrived by resisting the temptation to spread themselves too thin, says Jean-Philippe Biragnet, a technology expert with Bain and Company.
JEAN-PHILIPPE BIRAGNET, PARTNER/TECHONOLGY INDUSTRY EXPERT, BAIN & CO.: They are ruthlessly focused on their core business and they are just trying to be best and better constantly and trying to reinforce their core business. They are not looking for growth in 10 different categories; they are saying, OK, we have a key core business; we're (INAUDIBLE) who are strong in that technology. Let's be excellent at that and let's reinforce constantly our core.
CRAFT: At TDK's technical center outside Tokyo, engineers plumb the depths of ceramics just a few microns thick. Their mission is to figure out how to keep packing more performance into tiny components, doubling capacity every two years. The complexity of creating and manufacturing super-thin materials, says CEO Hajime Sawabe, puts the business out of reach for all but a few deep- pocketed rivals.
SAWABE: Developing materials is very time consuming and it's very hit-and-miss, so that makes it tough. But it offers the chance to come up with some proprietary black box technology. So compared to regular products, it's very hard for China, Taiwan and South Korea to catch up in this area.
CRAFT: So, while TDK is riding high on an unprecedented expansion almost three years old, the components king is counting on continued robust growth for at least the medium term. Lucy Craft, NIGHTLY BUSINESS REPORT, Tokyo.
