More than 50 years after the TDK brand became a household name with its best-selling cassette tapes, the Japanese group has transformed itself into the power behind the world’s smartphones and is now vying for a piece of the artificial intelligence market.
Audiophiles and collectors are still willing to splurge upwards of $200 on TDK’s discontinued cassettes, but the company itself has moved on and out of sight of consumers with its internal batteries.
“Since we divested the cassette business, brand recognition of general consumers, unfortunately, has been deteriorating. However, our contribution to society has been increasing,” chief executive Noboru Saito told the Financial Times at its Tokyo headquarters. “This is kind of a paradox or gap that I am strongly feeling.”
From its founding in 1935 as a producer of ferrite cores used to improve radio reception, the $24bn company has evolved to become the world’s leading supplier of smartphone batteries. It also holds significant positions in technology niches such as car sensors and power storage.
For Saito, who became CEO in 2022, the question is where TDK goes from here. With smartphone demand expected to slow in the coming years, TDK will need to expand revenue and profit from newer clients such as Nvidia and Tesla.
Some analysts are bullish that its diverse corporate culture built through aggressive acquisitions — including a 2005 deal for the consumer electronics battery maker ATL — will enable it to apply its technological edge to new areas from solid-state batteries and AI chips to electric vehicles.
“TDK has underlying technology, and because of its [flexible] corporate culture, it is able to capture AI opportunities and other new technologies,” said Nomura analyst Manabu Akizuki.
That flexibility means TDK’s impact on the global supply of batteries extends beyond the company itself. In 2011, ATL and its founder Robin Zeng spun off a business that became CATL, now the world’s largest electric-vehicle battery maker, in order to operate in China. The two companies maintain a cross-licensing deal and operate battery joint ventures.
On AI, Saito predicts the “growth ratio will be big”. Surging power requirements from AI smartphones, computers and chipsets are expected to boost demand for TDK’s batteries and materials, which can reduce energy demands and chip size. Orders for chip-related materials were already flowing after talks with all the “major players” in the chip industry, he said.
TDK, through Hong Kong-based ATL, has begun selling thinner, higher-density lithium-ion batteries that can power AI phones and laptops. Although the company is targeting up to a 40 per cent improvement in energy density — the amount of energy that can be stored in a given volume — Saito warned that getting to just a “two-digit” percentage gain would take time.
Alongside the AI push, TDK is looking to grow sales for its existing businesses, including capacitors and sensors for carmakers like Tesla and medium-sized batteries for energy storage and powering devices such as drones.
TDK has a long history of developing industrial materials, beginning with its founder Kenzo Saito, no relation to the current CEO, acquiring the patent for the magnetic material ferrite from two Tokyo professors who had invented it in 1930.
Ferrite cores made radios sound clearer and the material did the same for TV reception and then recording on cassette tapes. It still forms a major part of the business today for products such as transformers.
Alongside the plans to push into new areas, analysts and investors have given Saito credit for increasing free cash flow and return targets while planning to streamline the business portfolio. The share price is up more than 45 per cent this year.
However, risks remain, not least that earnings are still heavily dependent on rechargeable batteries. “TDK needs to show investors that it can follow through on its plans, reduce its reliance on smartphone batteries by building up other businesses and deliver on its targets,” said Ryosuke Katsura, a senior analyst at SMBC Nikko.
Today, 90 per cent of TDK’s ¥2.1tn ($13bn) in annual revenues come from outside Japan, with the company expanding its position in countries such as India, where it is manufacturing battery cells for Apple.
The group remains exposed to geopolitical risks, with a significant presence in China that still accounts for half of its sales and holds a strong grip over raw materials.
“Geopolitics is something we cannot control,” said Saito, adding that the group was trying to insulate itself against shortages through partnerships or longer contracts for raw materials.
For Saito and the group, the next phase will also depend on how much it can continue to make technological advances in new products such as solid-state batteries.
Last week, the company surprised investors with claims of a breakthrough in materials for small solid-state batteries that it said would significantly increase energy density, boosting performance for gadgets such as smartwatches.
However, it warned that the ceramic material meant larger-sized batteries would be more fragile, so the technical challenge of making smartphone batteries would not be surmounted in the foreseeable future.
“TDK is of course paying attention to the short term. But . . . we have also been investing in longer-term themes,” said Saito. “We have to keep our eye on any potential disruptive technology.”
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