Softbank Operating Profit Increases as IPhone Lures Users

Softbank Corp. (9984), the Japanese mobile- phone carrier that agreed last month to buy a $20 billion stake in Sprint Nextel Corp. (S), boosted second-quarter earnings by luring users with Apple Inc. (AAPL)’s iPhone.

Operating income rose 6.7 percent to 210.6 billion yen ($2.6 billion) in the three months ended September, the Tokyo- based company said in a statement yesterday. The carrier is also considering reducing its stake in eAccess Ltd. (9427) to one-third after the 180 billion yen acquisition is completed, Softbank President Masayoshi Son told reporters in Tokyo yesterday.

Softbank has narrowed the gap in subscribers with bigger rivals NTT DoCoMo Inc. (9437) and KDDI Corp. (9433) by cutting basic fees and being the first in Japan to offer the iPhone series, adding the most net new users every year since 2007. By increasing smartphone subscribers, Softbank has also raised average revenue per user of data services including streaming video.

The result “should be positive for the share price in the near term,” Hitoshi Hayakawa, an analyst at Credit Suisse Group AG in Tokyo, wrote in a note to clients yesterday. “The market’s focus has shifted from results to the impact of the recent major acquisitions” of Sprint and eAccess, he said.

The carrier, Japan’s third-largest for mobile phones, seeks to increase users outside the country. The acquisition of a 70 percent stake in Sprint Nextel would add the Overland Park, Kansas-based company’s 56.4 million mobile subscribers, bringing Softbank’s total to 96 million in the U.S. and Japan, compared with 60.8 million for NTT DoCoMo, Japan’s biggest mobile carrier.

EAccess Stake

Son also is considering the “merits and demerits” of owning all of eAccess as initially planned, he said.

Softbank rose 0.8 percent to 2,527 yen in Tokyo yesterday. The stock has gained 11 percent this year, compared with a 1.9 percent advance for the broader Topix index and a 17 percent decline for NTT DoCoMo.

Softbank left unchanged its projection for at least 700 billion yen in operating profit for the year ending March. Operating income rose 7.9 percent to 402.8 billion yen in the six months ended Sept. 30, beating the 373.2 billion yen estimate by Hayakawa of Credit Suisse.

Overseas Momentum

“Our earnings are running in top gear,” Son said. “It’s proof that the iPhone isn’t the only thing boosting our profits. We’re making various efforts, and that’s why we have strength to go overseas.”

The Sprint deal would be the biggest publicly announced outbound acquisition by a Japanese company since at least 2000, according to data compiled by Bloomberg. Softbank will pay $12.1 billion to Sprint shareholders and the deal includes $8 billion of new capital, according to an Oct. 15 statement.

Son is pursuing an acquisition strategy that counts on smartphone users migrating to faster wireless networks to surf the Web and download or stream videos and music. Softbank is looking to ride the fastest growth in mobile communications since 3G started rolling out a decade ago with the emergence of Long Term Evolution technology.

LTE subscriptions quadrupled this year to 73 million and are expected to reach 1.2 billion by 2016, according to projections from IHS iSuppli. Some of the world’s largest handset makers -- Apple, Samsung Electronics Co. and HTC Corp. (2498) - - support the technology.

Capital Spending

Softbank will increase capital spending to 700 billion yen this fiscal year as it seeks to keep capacity growth on pace with the increase in subscribers, then trim to 550 billion yen in the next 12 months, Son told reporters yesterday.

Softbank gained 320,200 subscribers in September, up from 217,200 in August. That compares with the 158,600 addition at DoCoMo. KDDI, the No. 2 operator that also started offering iPhone 5, attracted 224,900 users.

Softbank, the fastest-growing Japanese mobile provider, boosted earnings by more than sevenfold during the past four years with the popularity of the iPhone.

Net income fell 36 percent to 78.8 billion yen in the fiscal second quarter, according to yesterday’s statement. The sale of Yahoo! Inc. shares helped push profit for the same period last year to a record 122.5 billion yen.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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