SoftBank Group Corp laid out plans to get more aggressive in artificial intelligence and other fields, after reporting a second quarter of profit and a surge in the value of assets, including Arm Holdings Plc.
The Tokyo-based company earned a better-than-expected net income in the March quarter, helped by investment gains at the holding company and on derivative contracts. A surge in Arm’s stock since its initial public offering last year helped lift SoftBank’s net asset value to a record ¥27.8 trillion (US$178 billion), almost double the total a year earlier.
That gives the company the financial wherewithal to go after new strategic investments, said SoftBank Chief Financial Officer Yoshimitsu Goto.
“Failing to take risks constitutes the biggest risk for us,” said Goto, who’s previously served as the brakes on billionaire founder Masayoshi Son. “We have our sights set on a variety of challenges.”
Son is aiming to go on the offensive again after years of missteps at the Vision Fund, the massive investment group he set up to bet on startups. The fund is now steadily selling off and writing down assets in its portfolio as Son turns his focus to AI and semiconductors. SoftBank has accumulated a cash pile of ¥6.2 trillion at the end of March.
Son is seeking as much as US$100 billion to bankroll a chip venture to compete with Nvidia Corp and supply semiconductors essential for AI, Bloomberg News reported in February. The Japanese firm is also in talks to acquire British semiconductor startup Graphcore, Bloomberg reported.
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Goto said that SoftBank’s loan-to-value ratio has dropped to 8.4%, near a record low and far below the company’s target of 25%. That is one of Son’s favorite metrics for determining whether the company is properly balancing risk and opportunity.
“That may be too low and at a level that’s too safe,” Goto said of the NAV level, suggesting SoftBank may have the firepower for more offensive moves.
SoftBank earned a net income of ¥231.1 billion in the March quarter, compared with a net loss of ¥57.6 billion a year ago. For the full year, SoftBank reported a narrower net loss of ¥227.7 billion, beating expectations.
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The Vision Fund reported a surprise loss of ¥96.7 billion, as it marked down a series of valuations in the second Vision Fund’s portfolio of hundreds of unlisted startups. That accounted for about ¥54 billion in realized and unrealized losses on the likes of JD Logistics Inc, Better Holdco Inc, DingDong and AutoStore Holdings.
“The Arm IPO and share price rally were notable positives,” said Satoru Kikuchi, a senior analyst at SMBC Nikko Securities, in a note ahead of the earnings. “Our focus is on strategic investments directed by SoftBank Group rather than diversified investments like Vision Fund 2.”
Son is increasingly making investments through the SoftBank holding company rather than through the Vision Fund he set up seven years ago. The Vision Fund disposed of US$2.5 billion in assets in the fourth fiscal quarter, while it invested just US$120 million.
SoftBank’s attempts to leverage Arm technology and investing in AI services could be well-received by the market, SMBC’s Kikuchi said. To increase funds for investment, SoftBank could offload its holdings in T-Mobile, Deutsche Telekom, or Arm. In the past, SoftBank has sold off stakes in assets such as Alibaba Group Holding to finance new forays and also shore up its balance sheet and buy back shares.
“What I want to know is their stance on investing,” said Tomoaki Kawasaki, a senior analyst at Iwaicosmo Securities. “After holding back on investments for a while, they’ve been hinting that they could turn active again.”
