TDK Corporation - Company Profile, Information, Business Description, History, Background Information on TDK Corporation

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History of TDK Corporation

TDK Corporation is the world's largest manufacturer of high quality audio and video tape. In addition recording media have been critical to the company's phenomenal growth. Beyond the view of the average consumer's eye, however, is a company that is a world leader in a number of other product markets as well. TDK's research and development department has 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 1990s. In addition to TDK's imposing presence in magnetic recording media markets, the company's sales have been increasingly made up of electronic components such as ferrite cores and magnets; coil and assembled components including electric convertors and hybrid integrated circuits; ceramic components; and high-tech assembly systems capable of the exceptional precision necessary in the manufacture of circuit boards and other delicate components.

Originated as a Marketer of Ferrite Technology

The success of TDK (the initials stand for Tokyo Denki Kogaku Kogyo) 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 the TDK Corporation 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 dimensions 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.

Diversified Manufacturing and Expanded Overseas in the 1950s and 1960s

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 alternate 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. 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.

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."

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 is 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 benefitted from its partner's long-standing relationship with American automakers, and Allen-Bradley benefitted 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 discs 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 disks--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 Increased R&D Mark the 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 Inc. 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. And 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 six 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. The company cited electronic components for computers, home electronics, and telecommunications products as the main contributors to these gains.

As it moved into the late 1990s, TDK was well positioned in the five areas in which it operated: magnetic products, ceramic and assembled components, recording devices, recording media, and semiconductor-related products. The company, which was built largely around the merits of one material--ferrite--had long since become a diverse, broad-based high-tech company. As technology continued to race ahead, TDK, with its experience and dedication to creativity, was expected to remain an industry leader.

Principal Subsidiaries: Iida TDK Co., Ltd; Tsuruoka TDK Co., Ltd.; Yuza TDK Co., Ltd.; Kisagata TDK Co., Ltd.; Yashima TDK Co., Ltd.; Ujo TDK Co., Ltd.; TDK Service Co., Ltd.; TDK Design Core Co., Ltd.; TDK-MCC Co., Ltd.; Iwaki Kogyo Co., Ltd.; Yuri TDK Co., Ltd.; Konoura TDK Co., Ltd.; TDK Core Co., Ltd.; Ouchi TDK Co., Ltd.; TDK Distributor Co., Ltd.; Sakata TDK Co., Ltd.; Honjo TDK Co., Ltd.; Kofu TDK Co., Ltd.; Yuzawa TDK Co., Ltd.; Toso TDK Co., Ltd.; TDK (Australia) Pty. Ltd. (55%); TDK do Brasil Ind. e Com. Ltda.; (Brazil); TDK Dalian Corporation (China); TDK Electronics Europe GmbH (Germany); TDK Hong Kong Co., Ltd.; Korea TDK Co., Ltd. (50%); TDK Recording Media Europe S.A. (Luxembourg); TDK (Malaysia) Sdn. Bhd.; TDK de Mexico S.A. de C.V.; TDK Singapore (Pte) Ltd.; TDK Electronics (Taiwan) Corp. (80.24%); TDK UK Ltd.; TDK Electronics Corporation (U.S.A.); TDK U.S.A. Corporation; TDK Corporation of America (U.S.A.); TDK Magnetic Tape Corp. (U.S.A.).

Additional Details

Further Reference

McCartney, Scott, "Texas Instruments to Buy TDK Unit, Broadening Its Role in Chip-Making," Wall Street Journal, June 5, 1996, p. B8(W), p. B4(E).Sprackland, Teri, "How Silicon Systems Turns Yet into Dollars," Electronic Business, January 21, 1991, pp. 38-39."TDK Agrees to Buy Si Systems," Electronic News, April 17, 1989, p. 25."TDK Launches New Round of Product Development," Tokyo Business Today, July 1995, p. 18.

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