TDK to Withdraw From LTO Tape Business

TDK Corporation has announced that at a meeting of the board of directors held on August 28, 2013 it was decided that consolidated subsidiary Media Technology Corporation will withdraw from the data tape business and be dissolved.

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Reason for Business Withdrawal
Media Technology manufactures and sells LTO-standard tape-based storage media for archiving and backing up large volumes of data. In recent years, however, the storage market has been contracting, creating a difficult business environment. This has also made it difficult to foresee business growth going forward.

TDK is working hard at present to improve earnings in its core passive components business, and as part of these efforts it is reviewing the entire group portfolio and selectively concentrating resources on certain businesses. In this context, TDK has decided to withdraw from the data tape business as of the end of March 2014.

Accordingly, plans also call for Media Technology to be dissolved at the end of March 2014.

Overview of Media Technology Corporation

HQs: 801 Nakadate, Chuo City, Yamanashi Prefecture
Representative: Kenji Kotegawa
Main business: Manufacture and sale of LTO tape-based storage media and other data tapes
Paid-in capital: 5.0 billion yen
Establishment: October 11, 1991
Land: 29,000 square meters
Premises: 11,000 square meters
No. of employees: 144 (As of August 29, 2013; including employees loaned out from TDK Corporation)

Schedule

End of October 2013: Conclusion of production
End of March 2014: Conclusion of sales, withdrawal from business and dissolution

Impact on Business Results
This move will have a negligible impact on TDK’s consolidated business results.

Comments

$9.1 billion TDK has finally decided to stop to manufacture and sell LTO cartridges, as well as to close its 60-year-old storage media business, and consequently will not pursue LTO-7 and LTO-8 after current LTO-6.

It's going to shut down its subsidiary, Media Technology Corp., in charge of this magnetic activity established by TDK and Konica Minolta Holdings in 1991.

The company also withdrew from CD, DVD and Blu-Ray disc production in 2006 amid fierce price competition.

Tape manufacturing became a small business for TDK as it stated that:" This move will have a negligible impact on TDK's consolidated business results."

In storage, the company will now focus only on HDD magnetic heads, HGA and suspensions.

It's not a big surprise to see the Japanese firm leaving a tape media market suffering since several years. According to Santa Clara Consulting Group, it plunged in 2012, at $665 million, down 14% from 2011, with LTO share representing 94%. And it was worst for tape drives: -30% Y/Y, reaching only $392 million last year. The analyst firm said that HP led the LTO branded media market with a 31% unit share, IBM being second at 18% and Fujifilm third with 17%. Fujifim reps told us in 2012 that their company has a market share above 50% in non-branded LTO media

This move from TDK is bad news for its big LTO partner Imation. In 2007, the US storage company acquired the TDK Recording Media business for $300 million in stock and cash, and entered into a supply agreement which allows to purchase a limited number of LTO media for resale under the TDK Life on Record brand. In exchange TDK got also approximately 18% of outstanding Imation common stock and is now its largest shareholder.

At this time Frank Russomanno, who was Imation president and CEO - and was replaced by Mark Lucas in 2010 -, commented: "With this transaction Imation expands our portfolio of brands and builds on our four pillars of storage. Imation is bringing the well known TDK brand into our growing portfolio of strong consumer brands as well as adding the highly respected TDK brand recording media products to our commercial and consumer product portfolio."

On his side, TDK president Takehiro Kamigama, stated: "Powerful brands are important as consumers trust their critical information to these products. TDK and Imation can develop an ideal cooperation by complementing each others strengths in terms of regions, product and technology. The combination of the powerful TDK brand and the global brand and product management capabilities of Imation is the right strategy to take full advantage of these trends, compete effectively, meet evolving market demand and profitably grow the business."

In 2011, Imation signed a strategic agreement with its Japanese partner to jointly develop and manufacture magnetic tape technologies and discontinued tape coating operations at its Weatherford, OK facility. Under the agreement, they collaborate on the R&D of future tape formats in both companies' research centers in the U.S. and Japan, and consolidated tape coating operations to the TDK Yamanashi manufacturing facility, the one that will be closed.

We don't know now if the end of TDK tape business will change the former agreements between the two partners.

Following the market's trend, the Imation's magnetic product revenue decreased regularly. For its FY12 ended December 31, 2012, it was $286 million, down 13% from FY11 but it represented as much as 26% of its annual global sales.

Imation has now two choices:

also to definitively stop its LTO business, probably the best move,

to find another partner manufacturing LTO cartridges, the only three remaining being Fujifilm, Maxell, and Sony.