SoftBank Forecasts Record Operating Profit on Acquisitions

Photographer: Haruyoshi Yamaguchi/Bloomberg

“We aim to continue generating operating profit of more than 1 trillion yen,” said Masayoshi Son, chairman and chief executive officer of Softbank Corp. “There’s no change to the trend that users want high-quality handsets.” Close

“We aim to continue generating operating profit of more than 1 trillion yen,” said... Read More

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Photographer: Haruyoshi Yamaguchi/Bloomberg

“We aim to continue generating operating profit of more than 1 trillion yen,” said Masayoshi Son, chairman and chief executive officer of Softbank Corp. “There’s no change to the trend that users want high-quality handsets.”

SoftBank Corp. (9984), the Japanese wireless carrier bidding for control of Sprint Nextel Corp. (S), forecast record operating income as acquisitions and new subscribers using Apple Inc.’s iPhone stoke earnings.

Operating profit, or sales minus the cost of goods sold and administrative expenses, probably will exceed 1 trillion yen ($10.2 billion) in the year started April 1, up from 745 billion yen a year earlier, the Tokyo-based company said in a statement today. SoftBank said it’s making progress in the Sprint deal and doesn’t need to review its offer terms.

SoftBank, controlled by billionaire Masayoshi Son, has posted higher subscriber growth than larger domestic rivals in the past 12 months by luring iPhone users. The company acquired competitor eAccess Ltd. to meet bandwidth demand for iPhone customers and agreed to pay $20 billion for a 70 percent stake in Sprint, an offer topped this month by a $25.5 billion offer from Dish Network Corp. (DISH)

“There isn’t much concern for the company’s main business as its momentum of gaining new customers hasn’t come down,” said Hiroshi Yamashina, an analyst at BNP Paribas SA in Tokyo. “Earnings will likely keep growing as smartphone demand will likely remain strong.”

SoftBank rose 1.2 percent to close at 4,825 yen in Tokyo trading before the announcement, widening its gain this year to 54 percent. Japan’s benchmark Nikkei 225 Stock Average has added 33 percent this year. Shares rose 1.2 percent to 37.41 in German trading.

Accounting Standards

The forecast for Japan’s No. 3 wireless operator compares with the 914 billion-yen average of 10 analyst estimates compiled by Bloomberg within the last 28 days. The carrier expects an increase in operating profit even after acquiring unprofitable Sprint, Son said.

“We aim to continue generating operating profit of more than 1 trillion yen,” Son said. “There’s no change to the trend that users want high-quality handsets.”

SoftBank is introducing IFRS, or international financial reporting standards, from the current fiscal year as it prepares for the Sprint acquisition. The possible impacts of that switch from the Japanese accounting standard include deducting commissions for handset dealers from revenue and adopting another goodwill impairment method, the company said April 8.

In January, SoftBank predicted operating profit of about 700 billion yen for the year ending March 2014, using IFRS, and 800 billion yen under the Japanese standard.

Sprint Offer

Revenue rose 5.5 percent to 3.4 trillion yen, and net income fell 7.8 percent to 289 billion yen, the company said.

SoftBank isn’t planning to raise its offer for Sprint, the third-largest U.S. mobile-phone company, after Dish Network Corp. made a competing bid, an executive at the Japanese company said earlier this month. Some Sprint shareholders, including Omega Advisors Inc. and billionaire John Paulson, said they preferred Dish’s offer.

SoftBank will focus on its existing plans for Overland Park, Kansas-based Sprint, the executive said, asking not to be identified because the discussions are private. SoftBank hasn’t ruled out future action, the executive said.

Sprint agreed in October to a deal that would give SoftBank a 70 percent stake. The Japanese company’s proposal has “superior short- and long-term benefits” compared with Dish’s “highly conditional preliminary proposal,” SoftBank said April 16. The acquisition is expected to be completed on July 1 under the terms agreed upon, it said.

Shareholder Vote

Sprint has tentatively set June 12 as the date for a shareholder vote on SoftBank’s offer, the U.S. wireless company said last week.

Sprint has to pay Softbank $600 million if it recommends a rival offer, according to terms of the deal. The Japanese company in October closed the purchase of $3.1 billion of convertible bonds than can be exchanged for more than 590 million Sprint shares.

Raising the bid would make billionaire Son’s ambition to expand into the U.S. cost more, while the company’s credit ratings are already under review for a possible cut to junk.

Standard & Poor’s and Moody’s Investors Service Inc. have put the Japanese company’s credit ratings under review for possible downgrade on concern the Sprint acquisition may undermine its financial strength. A downgrade of one step would bring the rating to a speculative, or junk, ranking at Moody’s.

Gungho Deal

Son, Japan’s second-richest man, said in October he targeted Sprint because it can challenge Verizon Wireless and AT&T Inc.’s dominance of the U.S. mobile-phone industry.

The 55-year-old’s stated goal is to create the largest mobile-services provider in the world by revenue, surpassing Verizon, Vodafone Group Plc (VOD) and China Mobile Ltd. (941)

SoftBank earlier this year spent about 25 billion yen for a 6.4 percent stake in Gungho Online Entertainment Inc. (3765), a developer of Internet and mobile phone games run by Taizo Son, a younger brother of the SoftBank president, the company said April 27.

Earlier this month, NTT DoCoMo Inc. (9437), Japan’s biggest carrier, forecast a 2.9 percent increase in net income to 510 billion yen in the year to March 2014. KDDI Corp. (9433), Japan’s No. 2 mobile-phone operator, today projected a 22 percent jump to 295 billion yen.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

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

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