November 4, 2014 / 7:29 AM / 3 years ago

Japan's SoftBank slashes profit target, costly Sprint purchase weighs

SoftBank Corp. Chief Executive Masayoshi Son speaks during a news conference in Tokyo November 4, 2014. SoftBank Corp, the Japanese mobile carrier with ambitious plans to grow overseas, slashed its profit forecast as Sprint Corp, the U.S. carrier it bought for $21.6 billion, continues to lose customers with no quick fix in sight. REUTERS/Yuya Shino

TOKYO (Reuters) - Fast-growing Japanese telecom firm SoftBank Corp (9984.T) sliced the best part of $1 billion off its annual profit forecast as the Sprint Corp (S.N) U.S. carrier it bought last year continues to lose customers in droves, with no quick fix in sight.

In a reality check for Chief Executive Masayoshi Son as he seeks to make SoftBank a global mobile media powerhouse, the firm said on Tuesday its second-quarter operating profit fell 23 percent. With the yen sliding and U.S. borrowing costs seen rising, Son may have to pay higher prices if he is to keep buying assets to offset SoftBank’s sluggish domestic market.

SoftBank said Sprint’s troubles mean it now expects an operating profit of 900 billion yen ($7.9 billion) in the year through March 2015, down from the 1 trillion yen it previously estimated. Sprint is working though a painful revamping of its network, causing a subscriber exodus, and on Monday said it will cut 2,000 jobs after several quarters of losses.

“Sprint’s battle will be long and tough, and it’s not something that can be fixed in a short time,” SoftBank’s Son told reporters in Tokyo. SoftBank bought the number three U.S. mobile carrier last year for $22 billion as part of a drive to expand outside Japan that’s included investments across Asia.

“Along with cost cuts, we want to increase prime customers, not sub-prime customers, and we are already seeing things turn better,” Son said, saying Sprint’s focus is on long-term business rather than short-term, stop-gap fixes.

With scant prospects for major growth in Japan’s saturated but sluggish domestic market, Son has led the cash-rich company on a string of high-profile acquisitions and investments in telecom and Internet-related businesses, helped by low interest rates globally and a comparatively strong yen.

Son is Japan’s richest man through his near-20 percent stake in SoftBank, the country’s third-biggest mobile carrier by subscriber numbers and now worth about $85 billion by market value.

As well as being the largest investor in recently listed Chinese e-commerce giant Alibaba Group Holding Ltd (BABA.N), SoftBank has plans to invest $10 billion in India’s potentially huge but under-developed online retail market.

YEN REVERSAL

On Tuesday, Son acknowledged that his company had also made international acquisitions at a time when foreign exchange rates made it smart to do so. “Us taking action when the yen was strong has shown positive influences,” Son said.

With the dollar topping 114 yen on Monday after the Bank of Japan moved to expand its monetary stimulus program, the Japanese currency has hit its weakest point in nearly seven years versus the greenback.

The U.S. Federal Reserve’s decision last week to end quantitative easing means increased expectation of a U.S. rate hike next year, possibly bringing higher borrowing costs for the Japanese company.

“SoftBank has many overseas ambitions, and the weaker yen can affect their cash flow and does make it difficult for them,” Macquarie Capital Securities analyst Nathan Ramler told Reuters, speaking before SoftBank’s quarterly earnings announcements.

For the July-September quarter, SoftBank said operating profit was 259.0 billion yen, down from 337.1 billion a year earlier. That was below the 296.9 billion yen average of estimates made by four analysts, according to Thomson Reuters StarMine.

While fixing Sprint may distract SoftBank in its expansion drive, the company said on Tuesday it booked a bigger gain in the second quarter from the New York listing of Alibaba than it had previously anticipated.

SoftBank said its net profit for the quarter was boosted by a 563.1 billion gain from the Alibaba deal, up from the 500 billion it previously estimated. SoftBank’s net profit for the quarter almost tripled from a year earlier to nearly 500 billion yen.

Editing by Kenneth Maxwell

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