THE NEW VALUE FRONTIER

Top Management Message

President and Representative Director KYOCERA Corporation
          Hideo Tanimoto

Since its founding in 1959, Kyocera has steadily developed its business in order to realize our Management Rationale
“To provide opportunities for the material and intellectual growth of all our employees, and through our joint efforts, contribute to the advancement of society and humankind.”
The core of our Management Rationale is the Kyocera Philosophy, which has been carefully cultivated over the course of more than 60 years.
It is understood by the Group’s approx.
75,000 employees around the world and even today serves as the guide for our business management.
The business environment and workstyles are undergoing huge changes as a result of the COVID-19 pandemic that has thrown our world into turmoil.
Accordingly, we are continuing to challenge ourselves to draw out the potential of all our employees, including junior staff and the newly hired, who provide fresh viewpoints into our unrelenting quest to uphold our Management Rationale going forward.

Three Years that Showed the Kyocera Group’s Potential for Further Growth

It has now been three years since I was appointed president, and I recall something I felt very strongly then. Even though our founder Kazuo Inamori has constantly exhorted us to “always be ready to take on a challenge,” this attitude was not very apparent in our workplaces. I thought hard about what could be done to break free of that situation, and decided to create an opportunity for people to challenge themselves.

Namely the new business idea startup program launched at the end of 2018. More than 800 projects applied to join the program when it was launched, and a number of them are in fact currently moving towards commercialization.

We are stimulating a revival of that fading can-do spirit via such initiatives that give shape to ideas which come from frontline employees. The fact that many junior employees applied for the program made it clear to me that our can-do spirit has not been lost, and that Kyocera is still capable of growth.

Growth Strategy Aimed at Realizing Our Long-term Vision of What We Want to Be

Aiming to Create New Business

Ever since we were founded, we have made social issues the starting point from which we drive our business forward. That approach is typified by our solar energy business, which has been in existence for more than 40 years now. We have continued with in-house initiatives and R&D that tackle energy issues ever since a time when the term “renewable energy” was not in general use.

Meanwhile, it has become apparent that Amoeba Management, the unique management system that forms our operational core, has an aspect in which it combines with the changing times to cause organizational inertia. Based on that state of affairs, I realized that we need a totally new approach in order to be future-oriented and flexible in developing new business. By this I mean three new methods of approach which take social issues as their starting point: “top-down,” “lateral expansion of R&D” and “bottom-up.”

The top-down approach is based on the idea that it is the role of management to forecast future trends and create high growth business which will drive next-generation expansion. Robotics development is one typical example of this. With regard to the lateral expansion of R&D, we have established a system where the R&D segment drives the creation of new technologies in a cross-sectional and integrated manner. This is producing solid results, such as our development of the world’s first* claytype Li-ion storage battery. The New Business Idea Startup Program I mentioned earlier is an example of a bottom-up initiative. From amongst the entries submitted by 3,000 employees, three projects so far have been adopted as new businesses, and we are moving forward with the commercialization of the food allergy project, for example.

Regarding business growth in the future, I believe that expansions of existing businesses, such as optical communications for data centers, semiconductor memories, and AI chips, will grow very rapidly. In addition, I intend us to tackle key sectors such as 5G, ADAS (advanced driver assistance systems) and renewable energy as specific new business areas.

I intend us to productize local 5G as systems. For example, setting up a local 5G environment inside a factory will make it possible to control the factory’s operating system via AI and sensors. We are also moving forward with the development of local 5G base stations, and will implement initiatives that leverage the Kyocera Group’s know-how, for example by utilizing Group companies with experience in the construction of base station facilities and AI.

Going forward, we are required to further accelerate development speed from the safety perspective, as we work towards making ADAS a reality. ADAS is now at the stage where various sensors such as automotive cameras are installed in vehicles to improve safety, but the range that sensors are capable of covering from a vehicle is limited.

We are therefore working on the development of infrastructure such as roadside units that will transmit data to a vehicle from sensors installed above traffic lights, for example, which are capable of monitoring the vehicle’s blind spots. As an initiative utilizing these roadside units to ensure safety, we are currently cooperating in a demonstration test for the Bus Rapid Transit (BRT) system being conducted under the aegis of East Japan Railway Company (JR East) in Rikuzentakata, Iwate. Roadside units are based on communication technologies, a field in which Kyocera can make a contribution as we have many years of experience in business related to mobile phones and other telecommunications devices.

We are also focusing on renewable energy, a field that we identify as a social issue. We will develop an electric power service business that develops not only solar panels but also storage batteries and fuel cells, and offers solutions that provide economic benefits to the users who adopt them. We will also contribute to society by creating electric power supply and demand technologies via initiatives such as our VPP (virtual power plant) experiments. The resulting local production of renewable energy for local consumption will help regions to decarbonize, and will help to supply electricity after a disaster.

According to a survey by Kyocera (as of October 2, 2019)

Boosting Productivity and Maintaining Our Competitiveness

Complex and wide-ranging expertise and technologies are required in times like these, and a business cannot be established without a good command of a broad range of technologies, such as sensors, telecommunications and data analysis in the case of the IoT.

We have established a cross-functional structure for our R&D and marketing organizations to facilitate cooperation between divisions.

The idea is to create new value through interdivisional cooperation and make this our new growth driver. I also consider it essential to set up a crossfunctional structure for business groups during the commercialization stage and share information across divisional boundaries.

DX (digital transformation) must be accelerated so that we can move forward with interdivisional cooperation and the development of technology in new sectors. The Corporate Digital Business Promotion Group has been created this year and initiatives are in place to boost work efficiency throughout the company. At the same time, we are also actively adopting technologies such as data science to collect and analyze all manufacturingrelated data and discover new solutions.

In addition to gathering data via the IoT and utilizing AI to analyze them, we will reconstruct key networks compatible with multicloud platforms, for example, with the aim of encouraging employees to challenge themselves to leverage new technologies and develop a mindset of departmental optimization that focuses on total optimization. Furthermore, I intend to tackle the shift to a service-oriented energy infrastructure business as a digital business created with IT, and the implementation of client/project data sharing and online negotiations by means of the digitization of our sales offices.

In R&D, we transferred a part of the R&D functions for material technologies located inside the Kokubu Plant, Kagoshima to the Keihanna Research Center in Kyoto, and we launched the Minatomirai Research Center, a research laboratory to conduct research on software and systems in Yokohama City. These days, software plays an increasingly important role in the development of diverse technologies and products. The mission of the Minatomirai Research Center is to drive further DX and expand R&D laterally, as well as to explore how to incorporate those results into our businesses. Going forward, the plan is to make it into a base that will promote the use of external resources in various forms, such as M&A and business and capital alliances.

Promoting M&A and Open Innovation

In order to sustain our growth from now on, in an challenging era where we will need to continue to develop very diverse and distinctive products ahead of our rivals, we will need to engage not only in M&A but also in initiatives such as business and capital alliances with outside companies, joint development with business ventures, and open innovation.

An M&A must not only expand sales revenue but also realize profit growth via improved profitability. We will engage in integrated management of areas such as business strategies, sales management systems, and system linkage in order to create synergy as swiftly as possible between businesses acquired via M&A and our existing businesses.

It is true to say that, in the past, some M&A have quickly made a major contribution while some have taken longer than expected. In each case, we must ensure that the enterprises we acquire fully understand the Kyocera Philosophy, the key framework of our company. I believe we can build a good relationship in the long-term if they do.

President and Representative Director KYOCERA Corporation
          Hideo Tanimoto

The Impact of the COVID-19 Pandemic

COVID-19 has had a huge impact on Kyocera. In the first quarter of the year ending March 31, 2021 (from April 1 to June 30, 2020), our sales revenue decreased by 17.6% and our profit before income taxes by 33.1% in comparison with the same period in the preceding year. Our automotive-related and printer/MFP-related businesses were particularly badly affected.

In terms of our supply chains, although component procurement was barely affected, reduced international cargo services led to a steep rise in logistic costs for product transportation. In our production system, our American subsidiary AVX Corporation was affected by a lockdown, and the supply of some products was impeded.

We recently set up a network with 20,000 lines, enabling 90% of our office workers in the Kanto and Kansai regions to work from home. The network was originally set up for the Tokyo Olympics and Paralympics scheduled to be held in the Kanto region this year, so the transition went smoothly. In addition, we adopted a flextime system, which we hadn’t done before, and provided special furlough for families with children.

The assumption is that we will continue to have to coexist with the coronavirus and that workstyles will change, with a shift towards telework, for example. Marketing will probably no longer be face-to-face, with more efficient tools being utilized. We must accelerate our response to changes brought about by DX.

Future Challenges and Initiatives amidst the COVID-19 Pandemic and Other Changes in Our Business Environment

Business Expansion

When we develop new business sectors, in addition to the mobility and energy sectors, we will cultivate businesses that combine “goods, services and software” by implementing DX, and continue to take up the challenge of entering new sectors.

With regard to our existing businesses, the aim is to expand component-related businesses with a particular emphasis on electronic components and capacitors. Having made AVX Corporation a wholly-owned subsidiary, we will focus on sharing information and expanding the business of both companies.

I intend to make a shift towards software and industrial printers in our document solutions business, which develops printers and MFPs. In terms of telecommunications devices, going forward we will shift from the mobile phone business to the B2B sector, such as local 5G and IoT related business.

Global Expansion

With regard to overseas business, we will move forward with the reconstruction of a four-region system encompassing Japan, Asia, the U.S.A and Europe. With regard to China in particular, we are diversifying risks in response to the tariff issue that is arising as a result of economic friction with the U.S.A., and are transferring automotive camera operations to production sites in Thailand and photocopier operations to Vietnam. In Europe, we have carried out several M&A deals in the fine ceramics business for the purpose of securing production sites in Europe.

Human Resource Development

Another important key to secure growth going forward is the revitalization of Amoeba Management, our unique business management method. I joined the company during a period of growth when the “amoeba” small units that constitute each business division in the same organizational level were rapidly increasing and many amoeba leaders were born in the flat or non-hierarchical structure. In such an environment, junior employees could achieve professional growth. However, when the Company’s growth becomes low, organizations are likely to become fixed in a pyramid structure, making the “amoebas” less active than they used to be. I believe it necessary to flatten the organizational structure a little more to recreate a fertile environment where junior employees are able to flourish as “amoeba” leaders.

The age ratio in Kyocera is another issue. There is now a high ratio of employees in their 50s as a result of rapid growth in the 1980s. We can assume that these people in our leadership ranks will no longer be with the company in ten years’ time. We are endeavoring to promote next-generation leaders more swiftly as a measure to deal with this issue. We will encourage the assignment of junior staff members through new business creation and organizational reform in all departments, and advance their training.

The new business idea startup program I mentioned earlier is one such initiative to train future leaders. By creating new opportunities that are not bound by the existing business group framework, I want to create structures to launch a new generation of leaders in other sectors as well.

Environment, Society, and Governance

Meanwhile, we are also faithfully addressing the issues of the environment, society and governance (ESG). We recognize the extremely high level of compatibility between the Sustainable Development Goals (SDGs) adopted by the United Nations General Assembly in September 2015 and the way in which our business contributes to the advancement of society and humankind by putting the Kyocera Philosophy into practice.

We have established long-term environmental targets of reducing CO2 emissions by 30% from the FY2013 level by FY2030, and adopting ten times more renewable energy than in FY2013 by FY2030. In addition, we are carrying out demonstration tests of “self-consignment,” for which we expect to see a demand in the near future. In addition to aiming to establish this business model, I want us to contribute to the construction of stable and appropriate energy supply and demand structures aimed at making the renewable energy currently being developed in Japan the main source of electricity, and to contribute to the creation of a decarbonized society.

We are also engaging actively with the social issue of diversity. Telework and flextime are now becoming more common thanks to advancements in communication technologies, opening up the possibility of flexible workstyles. I intend to adopt a multi-faceted approach to establish a working environment that will offer opportunities for our diverse workforce to play an active role at Kyocera; opportunities for all our employees, regardless of gender, nationality, or any disabilities they may have.

With regard to governance, in December 2018 we set up a voluntary nomination and remuneration committee, a majority of which is constituted by Outside Directors, to enhance transparency regarding the nomination and remuneration of directors. Our Board of Directors is gradually becoming more diverse as well.

Two American and one female outside directors have been added, as well as two female executive officers.

The expansion of overseas business means that the number of overseas staff in our audit system is also increasing, and we are making diligent efforts to boost the level of governance by integrating at Head Office the internal audit system previously scattered within the Group.

To Our Stakeholders

Our vision from a long-term perspective is to be a company that places due importance on our Management Rationale, which is “To provide opportunities for the material and intellectual growth of all our employees, and through our joint efforts, contribute to the advancement of society and humankind,” and to take special care of our employees. This corporate culture is sacrosanct. We will steadily implement the Kyocera Philosophy. There are, of course, things in society that must, or should, be changed. We must be a company with the ability to change or transform calcified aspects. I believe that it is the spirit of generating change and challenging ourselves that will be our power source ten years from now.

Up until now, we have worked to create a more convenient society and way of life via our business, but from now on we will develop business where solutions to social issues are pivotal. I intend us to work on developing technologies that will play a role in sectors such as renewable energy and advanced mobility, put our Management Rationale into practice, and increase our corporate value. We will make every effort to ensure that all our stakeholders, namely our investors, employees, business associates and local communities, can lead safe and secure lives. I humbly request your continued support.

President and Representative Director KYOCERA Corporation
          Hideo Tanimoto