SoftBank : Q&A at Earnings Results Briefing for Q3 FY2020
02/16/2021 | 05:15am EDT
Q&A at Earnings Results Briefing for Q3 FY2020
Thursday, February 4, 2021 4:00 pm - 5:45 pm
Ken Miyauchi (President & CEO)
Junichi Miyakawa (Representative Director & CTO)
Kazuhiko Fujihara (Board Director, Executive Vice President & CFO)
What impact will reductions in mobile phone charges have on business results in FY2021? To what extent will you be able to cover that impact with fields such as non-telecommunications businesses?
Based on a conservative estimate, operating income from mobile communications charges in the Consumer segment is likely to decrease slightly next fiscal year. Meanwhile, when prices decrease this far, we believe that we can acquire a considerable number of customers. Naturally, there are some aspects where we cannot tell what may happen until we actually start the new price plans. For our part, we will estimate the maximum possible decrease in price plan related profit and work to reduce costs to mitigate the decrease. At the same time, we will pursue upside potential in the Enterprise segment, Yahoo segment and other areas.
May I ask Representative Director & CTO Miyakawa, who is appointed to be president in April, to share three priorities that SoftBank Corp. ('SoftBank') should address?
The first priority is business performance. SoftBank has carried out corporate management with a strong emphasis on continuously increasing earnings. I would like to carry on that ambition. Even if the Consumer segment suffers some damage due to price reductions, I would like to achieve earnings growth by generating profits in the Enterprise segment and other businesses.
The second priority is the major transformation driven by 5G. Until now, technology had focused on people-to-people communication. Thereafter, people, the internet and services started to be connected, and now things are starting to be connected to other things. We are in a period when all manner of industries will be transformed dramatically. Under these circumstances, SoftBank must implement various industrial reforms that go beyond the term digital transformation (DX). This challenge will become a major theme from next year onward. To this end, SoftBank needs to transform itself into a company that has a different structure than that of telecom carriers up to now.
The third priority is AI. Currently, the whole SoftBank group (SoftBank Corp. and its subsidiaries, 'the Group') is making a concerted effort to focus on AI and implement a wide range of initiatives. At this time, we have finally established good prospects for human resources development. With LINE Corporation ('LINE') joining the Group, many engineers will come onboard to be our colleagues. I believe that we should further deepen the AI knowledge of our technology teams and position SoftBank as a leader in the AI industry. Our strategy from next fiscal year onward is to become a 'comprehensive digital platformer,' and as the main priority of this strategy, we will tackle challenges centered on AI.
Why is SoftBank changing its president at this time? What led you to start discussing changing the president one year ago? Is it because SoftBank has reached a turning point in its business? Or is it because President Miyauchi wanted to mark an end to this phase of his career?
I have always believed that companies are like never-ending relay races where a runner must pass a baton to the next runner. For companies to ceaselessly develop, it is crucial for the baton to be passed skillfully from one member to the next. Moreover, the Nominating Committee, which is chaired by External Director Horiba, has recommended that SoftBank should properly build up the next generation of leaders. I have watched over SoftBank as its president for the past six years since the merger of five companies in 2015. When SoftBank listed its shares in 2018, I made a commitment to everyone that I would realize the 'Beyond Carrier' strategy. Thereafter, SoftBank was joined by Z Holdings Corporation ('ZHD'), which is led by President Kawabe, and LINE will be merging with us in March. We started to see what our 'Beyond Carrier' profile looks like. From here on, SoftBank will evolve in earnest from a simple telecommunication carrier to a platformer and internet technology company. I believe this is exactly the opportunity to change the president. The Nominating Committee, which consists of myself and four external directors, held a series of discussions and made the decision to change the president with the consent of Chairman Son. I believe this is a great time to change the president, and I feel pleasure about this decision. Going forward, I will not retire, but would like to focus my effort on new businesses.
Since 2015, I believe that President Miyauchi has provided overall leadership of SoftBank as the CEO, while Chairman Son has not been directly involved in management. What kind of roles has Chairman Son fulfilled for SoftBank? Also, Chairman Son's position will change from Chairman of the Board of Directors to Board Director, Founder. What kind of a presence will Mr. Son have within SoftBank in the future?
Chairman Son is currently not directly involved in the day-to-day operations of SoftBank. Mr. Son only attends meetings of the Board of Directors once a month. At these Board meetings, we sometimes get involved in heated exchanges of thoughts and ideas. Being able to receive sharp and insightful comments from Mr. Son has significantly benefited SoftBank. Moreover, as we advance collaboration with unicorn companies that have succeeded through the SoftBank Vision Fund, we expect to receive a wide range of advice from Chairman Son. Chairman Son's outstanding knowledge and his comments based on user perspectives in the Board of Directors' meetings have been highly useful to business management. In this sense, Mr. Son has been presented with the title of not merely 'Board Director,' but 'Board Director, Founder.'
You noted that the impact on business results from reductions in mobile telecommunications charges will be covered by the expansion of all manner of growth fields. What kinds of fields offer prospects for growth particularly in the next fiscal year?
First, we foresee growth in the Enterprise segment. In Q3, we grew operating income by 27% year on year in this segment. With the full-scale roll out of 5G services, we expect profits to accumulate in the Enterprise segment going forward. ZHD is also forecasting increased profits. In the Distribution segment, operating income had previously amounted to ¥5.0 billion until a short time ago, but it has now surpassed ¥20.0 billion. Moreover, losses at PayPay Corporation ('PayPay'), an equity method affiliate, are expected to be reduced by more than half in the next fiscal year. Cybereason Japan Corp. and SB Payment Service Corp. are also performing steadily. In essence, there has been tremendous demand for digitalization. We will need to work to ensure at least no earnings decline by building on these successes, along with cutting costs. SoftBank's businesses as whole have been riding the tide of digitalization. Even if there are ups and downs in the performance of certain business fields, I believe that management's job is to manage business operations so that it can absorb those fluctuations. This is another reason why we have advanced the diversification of our business portfolio.
With regard to the former employee who changed jobs to work at Rakuten Mobile, Inc. ('Rakuten Mobile'), what kind of information did he have that was crucial to SoftBank? Could you tell us your plans for responding to the situation going forward?
We are treating the taking-out of SoftBank's trade secrets from our company through unauthorized means as an extremely serious incident. We plan to file a civil suit to ensure that SoftBank's trade secrets are not used in Rakuten Mobile's businesses. The information is related to the backhaul for 4G and 5G network base stations. It is crucial information about where to build base stations. SoftBank has worked to develop this expertise over many years, and we believe that its unauthorized taking-out must not be tolerated. The investigative authorities are looking into the matter, so we do not know what the actual situation is like. In any case, SoftBank intends to take firm actions to address this matter.
Have you received a proposal on the future listing of PayPay from a securities firm? If PayPay is listed, will the scale of its corporate value surpass ¥100 billion?
We have received a proposal on the listing of PayPay from a securities firm. This does not mean that SoftBank has made a decision on the matter. I personally believe that PayPay has about the same value as Yahoo Japan.
If you are going to control costs, you could, for example, reduce the floor space of your new corporate headquarters. Isn't this a viable option?
Even if society returns to a 'new normal' in the future, we expect that the ratio of employees regularly commuting to the office will remain at around 50%. Therefore, our offices, which had previously been spread out across different locations, were co-located at our new corporate headquarters. By doing so, we have made a move that will substantially reduce annual costs. Because we have co-located offices including those of our Group affiliates at the new corporate headquarters, the total floor space has been reduced by half, allowing us to reduce costs.
I would like to know how you will add new businesses on top of your core businesses as part of your medium-term strategy. With regard to the future monetization of PayPay, I believe that if fees were charged for the service, this would lead to the generation of revenue and profit going forward. Thereafter, I believe that your strategy is to add on lifestyle-related services. I would like to know whether you will really be able to generate revenue and profit even if you create a lineup of financial and other services, and how you foresee this happening.
Over the past two years, we have increased the number of users of PayPay to more than 35 million in a short period. To do so, we have had to make the PayPay service available at a large number of merchants. In fact, we have increased the number of PayPay merchants to about 2.8 million at this time. Currently, fees are set at ¥0 for ordinary small merchants. If we begin collecting fees in the future, PayPay's business performance could break even if we set the fees at a low rate, because we have so many merchants. We also believe that by adding on financial services using fintech, we can generate a considerable amount of earnings. Right now, we would like to focus on increasing the number of users and creating more opportunities for both merchants and users to feel that they are having a good experience with PayPay.
After the integration, LINE will be operated by NAVER Corporation (NAVER) and SoftBank, which are its shareholders. Going forward, I believe that you will be implementing a global strategy based on a 'Beyond Japan' theme together with NAVER, a global company. Could I ask you about your prospects for global business expansion?
SoftBank meets with NAVER around once a month. LINE has entered Taiwan, Thailand, Indonesia, and other markets, and commands dominant market shares in Thailand and Taiwan. NAVER has excellent technologies. In addition, NAVER has many engineers, and they have started to interact with SoftBank's engineers. NAVER is an extremely powerful company. I believe that by implementing the Beyond Japan strategy together with NAVER, more concrete initiatives have emerged than did in the past. We share same aspiration with Mr. Hae-Jin Lee, NAVER's founder.
Could you tell us what kind of impact the new price plans announced last month by Rakuten Mobile is likely to have on the mobile communications market and SoftBank's competitive environment? Also, Rakuten Mobile's price plans are being received by the public as offering competitive rates for small and medium-sized data capacity plans. What kinds of strategies will SoftBank implement to respond to such plans?
Five years ago, when the Ministry of Internal Affairs and Communications (MIC) shifted its focus to mobile virtual network operators (MVNOs), SoftBank created the Y!mobile brand and was able to continuously increase the number of users. Moreover, this time we have announced new Y!mobile price plans that address 4G and 5G. With these price plans, we believe that we can put up a fairly effective response. Y!mobile and SoftBank possess not only networks, but also a major infrastructure in the form of sales channels. The key point is that competition is not based on price only.
Another issue is network quality. In Japan, the quality of networks will be put to the test. Furthermore, 5G networks will arrive. Companies have started to compete on how much they can invest in 5G and how far they can expand their networks. In this sense, we believe that SoftBank has considerable advantages. We believe that success will be determined by overall strength, encompassing factors such as device lineups, customer support, and the breadth of content. Based on these factors, we believe that SoftBank can compete effectively against its rivals.
Representative Director & CTO Miyakawa has said that he wants SoftBank to be a company that continuously tackles challenges. Could you tell us what led Mr. Miyakawa to put forth the keyword of 'challenge'?
I put forth 'challenge' as a keyword based on my belief that however much a company grows, it should always seek to remain a startup. Since its founding, SoftBank has continuously tackled challenges. That is how it has finally got where it is today. Chairman Son has always said, 'continuously tackling challenges leads to evolution,' and that is what we have been implementing. I am eager to carry on that spirit and pass it on to future generations.
You said that SoftBank will focus on AI going forward. However, your competitors are also working to address AI and cutting-edge technologies. What are SoftBank's strengths in this area?
We do not believe that AI is simply a tool for making things more convenient. Looking ahead, society as a whole will shift from previous business models that merely supply content to users, to a B2B2C model, where businesses collaborate with each other to offer services to customers. User touch points will be crucial to this model. SoftBank, Yahoo Japan, LINE and PayPay each have a tremendous number of users, and together they form one large platform. We aim to establish a B2B2C business ecosystem where we open this platform to partner companies and have them conduct business on the platform, thereby delivering satisfying experiences to SoftBank's users. We believe that AI lies at the core of these efforts. We will form even stronger platform coordination by linking each individual platform through application programming interfaces (APIs). In this process, AI's role will be to achieve overall optimization. SoftBank's ideal AI is seen as AI that will achieve optimization of society as a whole. We would like to fully develop this type of AI into the core of SoftBank. To this end, SoftBank holds daily internal discussions on AI, and we believe that our position in AI is second to no other company. Additionally, at the Institute for AI and Beyond, which SoftBank established jointly with the University of Tokyo, we are holding daily discussions on how to surpass today's AI.
SoftBank Group Corporation published this content on 16 February 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 February 2021 10:14:08 UTC.