TDK Q2 FY27: The Heads Made Half the Profit Growth. The Batteries Made None.

The setup

TDK's raised guide still has second-half operating profit falling 24.7% below the first half's, a steeper drop than last year's seasonal pattern. The hard-disk heads are the reason it will not. Our call: operating profit for the year to March 2027 beats the new ¥365.0B (~US$2.29B) guide, and the October-to-December quarter prints at or above ¥110.0B. We are wrong if that quarter comes in below ¥100.0B.

The September quarter is two companies in one filing. Sales were ¥819.6B (~US$5.14B), up 26.6% on the year and 10.6% on the quarter. Operating profit was ¥121.8B (~US$0.76B), a 14.9% margin, up 33.6% on the year and 41.2% on the quarter. Magnetic Application Products, the segment that makes hard-disk-drive heads and suspension assemblies, earned ¥23.6B of segment profit on ¥95.3B of sales, a 24.7% margin. A year earlier it earned ¥5.6B. Energy Application Products, the rechargeable-battery and power-supply segment that is 56.4% of sales (¥461.9B of ¥819.6B), earned ¥80.8B, ¥1.5B less than a year earlier on 27.4% more sales. Of the ¥33.9B rise in segment profit on the year, the heads produced 53.0% and the batteries produced nothing.

Put the heads number against its own history. Magnetic Application earned ¥3.4B in all of the fiscal year to March 2025 and ¥27.0B in the fiscal year to March 2026. One quarter now earns nearly seven times the first of those years. In the four quarters of the year to March 2026 it earned between ¥5.6B and ¥7.5B a quarter. It is not a good quarter in a normal range. It is the segment changing size, in the quarter the drive makers it supplies raised their prices per terabyte by double digits.

For the half, sales were ¥1,560.6B (~US$9.79B), up 31.9%, and operating profit was ¥208.2B, up 41.0%. TDK raised the full-year guide from ¥2,580.0B of sales and ¥295.0B of operating profit, set on April 28, to ¥3,050.0B and ¥365.0B. It raised the dividend forecast from ¥40 to ¥50 a share, against ¥36 last year. It raised planned capex from ¥370.0B to ¥400.0B. It also cut its own cash: operating cash flow for the half was ¥78.6B, down 58.5% on the year, against ¥166.4B of capex. This page argues the profit guide is conservative and the cash flow is the part to watch.

There is no open call on TDK to grade. This is the first deep dive on the name, which Tony added to coverage on October 13 as the head supplier to read alongside Seagate and Western Digital. The calls it makes below are dated and go on the record.

The numbers

Every figure above is from TDK's Tanshin for the six months to September 30, 2026, filed October 30, and the Tanshins for the prior quarters. The Tanshin is unaudited and unreviewed, as the filing says. TDK's fiscal year ends March 31, so Q2 FY27 is July to September 2026. First-quarter segment profit, quarterly cash flow and quarterly capex are derived: the six-month figure less the second quarter, or the cumulative statement less the prior one. Segment sales are to external customers. Dollar conversions use ¥159.41 to the dollar, the half-year average the company reports, and are approximate.

Two lines need context before the argument. First, currency. The yen averaged ¥159.41 to the dollar in the half, 9.1% weaker than a year earlier, and TDK says that added about ¥134.4B to sales and about ¥19.9B to operating profit. That is 35.6% of the sales increase and 32.9% of the operating-profit increase. The rest is volume, price and mix. Second, tax. Income tax for the half was ¥33.7B on ¥213.1B of profit before tax, lower in yen than a year earlier on 44.5% more profit. The filing says the half-year rate is an estimate of the annual effective rate. Net profit rose faster than operating profit partly because the tax line did not.