Credit Suisse Upgrade Buoys Softbank

The telecom-services provider's price gambit has drawn a half-million subscribers quickly, boosting revenue projections

Softbank (SFTBF) founder and President Masayoshi Son is no stranger to bold strategic bets. He shook up Japan's broadband business several years back by undercutting rivals on price with Softbank's Yahoo BB unit, and he's trying to pull off the same trick in Japan's hotly contested $75 billion mobile phone business.

Back in early January, Son announced a new low-price plan that, beginning in mid-January, charges subscribers just 980 yen ($8.30) a month and lets them make free calls and send e-mail at no charge from 1 a.m. to 9 p.m. In doing so, Japan's third biggest wireless operator is making an audacious market share grab against market leaders NTT DoCoMo (DCM) and KDDI (KDDIF) (see, 1/5/07, "Will Price Cuts Work for Softbank?").

Some think he may succeed. On Jan. 29, Softbank's share price shot up 5.5% to 2735 yen ($22.45), leading all gainers on the Tokyo Stock Exchange. The company's stock is up 18% since its closing price on the last day of trading in 2006.

Still No. 3

The trigger on the Jan. 29 strong performance is a new report by Credit Suisse analyst Hitoshi Hayakawa issued on Jan. 26 that more than doubled Softbank's target stock price to $25.35. He points out that Softbank's new pricing plan "attracted 500,000 subscribers in just 10 days since its launch, and the company is planning to launch a wide range of spring models—one available in 20 colors—that no other carrier has offered to date."

Credit Suisse is forecasting dramatic revenue and profit gains at Softbank, which offers fixed and wireless telecom services and owns a big piece of Yahoo! Japan. Hayakawa thinks Softbank's group revenues will nearly double to $17.9 billion in the fiscal year ending March, 2008, vs. the previous 12-month period. During that same time, net earnings will increase 365% to $2.9 billion, according to Credit Suisse projections.

Last year, Softbank rolled out dozens of snazzy handsets that let users download music over fast 3G networks, gain access to Yahoo! Japan's search engine with the touch of a button, and catch the latest ballgame via digital TV receivers.

Even so, Softbank was a distant third among Japanese wireless operators at the end of 2006 with only a 16% share of the market. DoComo remains the dominant force with 55%, and KDDI has a 29% share.

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