TDK Q2 FY2027: AI demand lifts first-half profit, outlook raised

TDK posted higher revenue and profit in April-September 2026. Revenue rose 31.9% year on year, operating profit increased 41.0% and interim profit attributable to owners of the parent climbed 58.4%. The operating margin improved to 13.3% from 12.5%, with profit growth outpacing sales growth.

Key factors behind the gains included:

• Foreign exchange: The yen weakened against the dollar and euro compared with a year earlier, adding about 134.4 billion yen to revenue and about 19.9 billion yen to operating profit.
• AI data centers: Firm demand supported sales of passive components, nearline HDD heads and suspensions.
• New products and ICT: Production of smartphones and other products declined, but sales of rechargeable batteries and sensors for new models grew.
• Profit improvement: Streamlining and the effects of structural reforms carried out in the previous fiscal year supported earnings.

AI-related demand and the weaker yen fueled profit growth, while lower production of smartphones and other ICT products and soaring memory prices were headwinds. Growth in data center demand, new products and cost improvements helped offset pressure in tougher markets. The improvement in the operating margin, alongside higher sales, shows how expansion in growth areas contributed to profitability.

All four reportable segments posted higher revenue and profit. Magnetic application products delivered the fastest sales growth, while the core energy application products business also expanded its revenue base.

Energy Application Products secured revenue growth as sales to the ICT market increased, led by rechargeable batteries. The business accounts for more than half of companywide revenue. In the second quarter alone, revenue rose 27.4% year on year, while segment profit fell 1.9%, marking a pause in profit growth.

Magnetic Application Products saw a sharp rise in sales of HDD heads and suspensions, supported by demand from AI data centers. Passive Components benefited from demand for data center products as well as capacitors for industrial equipment, and profit growth substantially outpaced sales growth. Sensor Application Products also increased sales to industrial equipment and ICT markets, while the Other business narrowed its loss.

Total assets at the end of the first half rose 6.1% from the previous fiscal year-end to 4.6865 trillion yen, and the ratio of equity attributable to owners of the parent was 49.7%. Equity grew as earnings accumulated, while trade receivables and property, plant and equipment also increased.

• Capital strength: The equity ratio rose 0.2 percentage points from the previous fiscal year-end, and retained earnings increased 136.9 billion yen.
• Operating cash flow: Cash inflow was 78.6 billion yen, down from 189.4 billion yen a year earlier. TDK cited an increase in working capital as the main reason.
• Investing and financing cash flow: Investing activities used 101.6 billion yen, while financing activities generated 32.6 billion yen. Purchases of fixed assets increased from a year earlier.
• Dividends: The interim dividend rose to 25 yen from 16 yen a year earlier, and the full-year forecast was raised to 50 yen from the previous fiscal year's 36 yen actual payout.

TDK is also reflecting earnings growth in shareholder returns. Its medium-term management plan targets a 35% dividend payout ratio, with dividends set in consideration of reinvestment in the business, ROE and DOE. Operating cash flow lagged profit growth, making it important to watch whether working capital, including trade receivables, continues to rise.

TDK raised its forecast for FY2027 after first-half results exceeded assumptions made in April 2026. The revision also reflects firm demand from AI data centers and sales of products for new models in the ICT market.

The operating profit forecast was raised by 70 billion yen from the previous forecast, and is expected to increase 34.0% from the previous year's actual. The full-year revenue forecast was lifted 18.2% from the prior outlook and is projected to rise 21.8% year on year. TDK also increased its estimate for one-time costs, including structural reform expenses, to about 11 billion yen from about 6 billion yen in its initial outlook, meaning the forecast upgrade incorporates higher costs.

For the third quarter onward, TDK assumes an exchange rate of 155 yen per dollar and 180 yen per euro. Its forecast for fixed-asset purchases was also raised to 400 billion yen from 370 billion yen, as the company plans to increase investment to meet growing demand.

Research and development spending in the first half rose 15.0% year on year to 153.8 billion yen, while fixed-asset purchases increased 47.6% to 166.4 billion yen. TDK left its full-year R&D forecast unchanged at 310 billion yen, but raised its fixed-asset purchase forecast by 30 billion yen.

• Research and development: TDK will continue developing products for a range of markets, including AI data centers, ICT and automotive.
• Capital investment: The full-year fixed-asset purchase forecast was raised to 400 billion yen from the previous year's actual 298.6 billion yen.
• Business portfolio: TDK expects about 11 billion yen in full-year structural reform and related costs as it works to improve profitability and reshape its businesses.

TDK plans to maintain high R&D spending while adding to capital investment. The company aims to capture strong AI data center demand while also addressing longer-term markets such as ICT and automotive electrification and automated driving. Returns on investment and higher utilization rates will be key to watch.

TDK is benefiting from AI data center demand and favorable currency movements, but the electronic components market remains prone to swings in demand. The company has also warned that actual future results may differ from its forecasts.

• ICT demand volatility: Smartphone and other production is being affected by tight memory supply and soaring prices. Weaker demand for new models could affect sales of rechargeable batteries, sensors and other products.
• Reliance on AI data center demand: Sales of nearline HDD products and passive components are growing, but a slowdown in capital spending or a shift in demand could affect the products driving growth.
• Currency and geopolitical risks: The global economy remains unsettled, including amid tensions in the Middle East. A shift to a stronger yen could weigh on yen-denominated revenue and profit.
• Working capital and investment burden: Operating cash flow fell short of the year-earlier level, in part because of higher trade receivables. Restoring cash generation while expanding capital investment remains a challenge.

The durability of demand and cash collection are key questions. Investors will need to assess whether the market conditions behind the forecast upgrade persist, and whether TDK can turn sales growth into cash inflows, as they gauge the likelihood of meeting its full-year targets.