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Reinventing Ourselves ANNUAL REPORT 2017 English Version The Story of TDK’s Sustainable Corporate Value Creation Constantly Refined Constantly Upholding Magnetics a Spirit of Technology Originality 1935 Corporate Motto One of four great Contribute to world-class Innovations culture and industry Ferrite core through creativity “A more than 80-year history in “Creating value that does not yet exist tandem with magnetism” in the world on a material level” The magnetic material “ferrite” is an original Today’s TDK was founded in 1935 as Tokyo Japanese invention of Dr. Yogoro Kato and Denki Kagaku Kogyo K.K., with the goal of Dr. Takeshi Takei of the Tokyo Institute of industrializing ferrite. Identifying with Dr. Technology. As an important magnetic mate- Kato’s statement that, “the Japanese must rial for cutting-edge electronic equipment, develop their own genuine industries,” ferrite continues to contribute widely to Kenzo Saito, the Company’s first president, society, and in 2009 was designated as an succeeded in commercializing a so-called IEEE Milestone. With its origins in this “ferrite core.” His philosophy of “creating landmark invention, TDK has continued to value that does not yet exist in the world on refine its magnetics technology throughout a material level” continues to be handed the course of its more than 80-year history. down at TDK today. Annual Report 2017 1 The Story of TDK’s Sustainable Corporate Value Creation MILESTONE Innovation and The TDK of the Future Self-Transformation as Transformation Transformation Transformation Next-generation electronic components Governance Globalization Shift to Growth Areas Driving Forces Number of Outside Officers Sensors & Actuators (Directors and Audit & Overseas Production Ratio Expansion of Automotive Sales Supervisory Board Members) With magnetics technology as its core competence, TDK has devel- 2002 2017 1995 2017 2010 2018 (Target) oped a succession of global innovations that leverage its spirit of Power supplies originality. Continuous innovation in its existing products, a pro- person 42% 12% 1 6 people 86% 30% cess repeated throughout TDK’s more than 80-year history, along (As of end of June 2017) with nonlinear innovation via strategic withdrawal from non-core Batteries businesses and optimization of its business portfolio, will continue High-frequency components to be the driving forces behind the Company’s ongoing growth. TDK = Electronic HDD magnetic heads components for Magnetics smartphones Technology Magnetic tapes TDK = HDD magnetic heads Capacitors Spirit of TDK = Magnetic tapes Transformation Magnets Portfolio Shift Originality Inductors Net Sales 1970 1980 1990 2000 2010 2016 2020 Corporate 1935 1961 1965 1986 2000 2005 2008 2016 History Founded in Shiba-ku, Tokyo, with the TDK shares listed on Establishes TDK Electronics Corporation, a local Acquires SAE Magnetics Acquires Headway Technologies Inc., a U.S.-based Acquires Amperex Technology Limited of Hong Kong, Acquires the EPCOS Group, Acquires Micronas goal of industrializing the world’s first the First Section of the subsidiary in New York (with manufacturing and (H.K.) Ltd., a Hong Kong- magnetic head manufacturer. a manufacturer and seller of lithium polymer batteries. a German electronic device Semiconductor Holding AG, a ferrite core. Tokyo Stock Exchange. sales sites later established around the world). based magnetic head manufacturer. Swiss developer and manufac- manufacturer. Acquires Lambda Power Group, the power supply turer of magnetic sensors. business of U.K.-based Invensys plc. Innovation That Drives Transformation New Commoditization Continuous Innovation in Nonlinear Innovation with innovation Passive Components Magnetism at Its Core 1968 The multilayer chip inductor, based One of four great 1980 While its main products are doing well, world-class innovations Growth on the world-leading fine multilayer- One of four great world-class innovations TDK works to forecast long-term tech- Magnetic tape ing technology developed by TDK in nology trends and develop core busi- 1980, contributed greatly to the cre- Fine multilayering Growth technology nesses for the future, sometimes boldly 1987 ation of small, thinner electronic One of four great replacing its main business focus. This is world-class innovations Growth equipment. Continuous innovation what we call “nonlinear innovation,” and Sowing HDD magnetic in these types of passive components SESUB (semiconductor embedded it provides a schematic for TDK’s sus- and other existing products is one substrate) developed through appli- Commoditization head cation of materials technology and tainable growth. HDD magnetic heads driver of TDK’s sustainable growth. fine processing technology that have achieved phenomenal record- Sowing Commoditization ing density are one such example. Sowing 2 TDK Corporation Annual Report 2017 3 TheTDK Story素素素素素素素素素素素素素素素素素 of TDK’s Sustainable Corporate Value Creation INNOVATION PROCESS 5Achievingつの競争優位性で Sustainable Growth in Corporate Value through 持続的な企業価値拡大を実現フFilmフフフ capacitors 5 Competitive Advantages フフフフフ Transponderフフフフフフフフフフ素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素 coils 素素素素素素素素素素素素素素Competitive advantages,TDK素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素 including materials and process technologies, 素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素素a customer base, strength of diversity, a global business base, and フフフフフフフフフCamera module フフフフフフフactuators Multilayerフフ Powerフフフ ceramicフフフフフフフフフ inductorsフフフフフ integrated production, are the foundation of TDK’s growth. Synergies capacitorsフ Chokeフフフフ between these competitive advantages, which stand solidly on the inductorsフフフフフ magnetics technology TDK has cultivated over many years, are a hidden strength supporting the sustainable growth in corporate value. Aluminumフフフフフ electrolyticフフフフフ NTC capacitors sensorsフフフ Currentフフフフフ Hallフフフフフフ sensors sensors Piezoフフフ Trans-フフフフ actuatorsフフフフフフフ formers Ferriteフフフフフ coresフフフフフフフPressure sensors EMC Magnetics filtersフフフフ Inductorsフフフフフ Varistorsフフフフ Noiseフフフフフ Technology磁性技術 suppressionフフフ sheets 1 2 3 4 5 Chipフフフ beads フフフフFerrite ェライト Spiritの of HDDフフフ magnetic 独創精神 Lithiumフフフフ ion Ferriteフフフフフフフフheads フフフフNeodymium batteriesフフフフフ magnetsフフ Originality フフフフフmagnets フフフフRadio wave anechoic chambers LTCC-RFLTCC-RF TMTM Switchingフフフフフフ (HMLフHML )フ powerフフ supplies xEVDC-DCフフフ converters HDD フ Bondフフフフフ DC-DCfor xEVフフフフフ suspensionsフフフフフフフ magnets Radioフフフフフ wave TMRフフフ sensors absorbers Competitive AdvantagesTDKフフフフフフフフフフフフフフフ Supporting Sustainable Growth at TDK Infinite Innovation Hidden 1 2 3 4 5 見えざる強み 1 2 3 4 5 Strength With ferriteフフフフフフフフフフフフフフフフフフフフフフフフフフ as a starting point, TDK has extended 素Materials 材・プロセス and Customer Strength多様性の of グローバGlobal ル Integrated the boundlessフフフフフフフフフフフフフフフフフフフフ potential of innovationTDK フフby refining 顧客基盤一貫生産 and exertingフフフフフフフフフフフフフフフフフフフフフフフフフ its competitive advantages, and today, Process Technologies技術 Base Diversity強さ Business事業基盤 Base Production we are taking on the challenge of new business innovation. 4 TDK 株式会社Corporation アニュアルレポートAnnual Report 2017 5 Customer Automotive ICT 2 Base Enabling Investment from a Long-Term Perspective TDK has built strong relationships with its customers in the automotive, Materials and ICT, industrial and energy markets, and other markets. This competitive Industrial advantage allows us to more accurately forecast future changes in tech- and Energy nology trends, and reduces the risks involved in making aggressive R&D 1 Process Technologies and capital investments. Creating “Black Boxes” to Prevent Imitation Materials technology elicits the targeted properties in a product through advanced expertise in complex composition processes and control of additives. Process technology maximizes the properties of these materials while also expanding the scope of their application in products. Strength of Creating “black boxes” for techniques for controlling crystal particles at the atomic level, for intellectual property, and for other know-how makes them difficult to imitate overnight. 3 Diversity Materials A Spirit of Equality Leading to M&A Success TDK has built its relationships with the companies it acquired based Development not on controlling them, but on positioning them as equal partners. and Design This expertise in post-merger integration, cultivated over long years Competitive Advantages of experience in M&A, is a powerful weapon in ensuring the success Evaluation and of our business portfolio. Simulation Supporting the Creation Front-End Non-Japanese Process of Innovation and Corporate Officers Back-End people Process 6 Long-Term Value Japanese Corporate Officers 12 people (As of end of June 2017) Global Integrated Production 5 4 Business Base A Powerful Advantage in the Age of IoT Overseas Sales in Excess of 90% Integrated production, where everything from materials to the final product is handled in-house, TDK began full-scale globalization efforts in the 1960s, enhancing its local allows TDK to take the initiative in product evolution, and we have successfully increased pro- production and technical support infrastructure overseas and expanding ductivity through the introduction of IoT and robots. Our ability to also control quality entirely its business with manufacturers outside Japan. This global business base, in-house gives TDK a competitive advantage in areas of the IoT market where quality require- with approximately 90% of production and sales generated overseas, is a ments are particularly high, including the automotive and

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