BUSINESSWEEK ONLINE : APRIL 24, 2000 ISSUE
INTERNATIONAL BUSINESS Nosedive for a Net Highflier Hikari's credibility crisis has investors and partners running Japanese entrepreneur Yasumitsu Shigeta was soaring. In February the market capitalization of his Hikari Tsushin Inc., a blazing-hot mobile-phone retailer and Internet investment firm, hit $72 billion, up nearly fivefold in six months. The upstart had become Japan's eighth-most-valuable company, right up there with Toyota Motor Corp. and Sony Corp. Shigeta, 35, was lauded as the kind of business leader Japan needs to build its new economy. Today, Shigeta is under attack from all sides for poor management, and Hikari is being held up as an example of what can go wrong when a company fails to meet its earnings targets in volatile times. Shigeta is by no means finished. After all, his mobile-phone marketing division, which controls the 1,445-store Hit Shop chain, remains a leader in one of the world's richest markets. But the Hikari president and CEO is facing his toughest test since founding the company 12 years ago. He is scrambling to restructure and recover investors' support. Shigeta triggered the crisis. In mid-March, when local media began criticizing Hikari's hard-sell tactics in the mobile-phone business, Shigeta assured analysts and investors that the company's fundamentals were solid. Then, two weeks later, Shigeta dropped a bombshell. Instead of making $57 million in operating profits for the six months ended Feb. 29, Hikari said it expected a $124 million operating loss--its first red blotch since going public in 1996. ''We felt betrayed,'' recalls Luigi Limentani, a Nikko Salomon Smith Barney analyst, who, like many others, downgraded the company. Hikari went into a screaming nosedive. As of mid-April, its share price had fallen to $380, down from an all-time high of $2,190 on Feb. 14. Some business associates are now vowing to distance themselves from Hikari. ''Either they change their image, or we'll have to reconsider our relations,'' says Hajime Unoki, president of SkyPerfecTV, a satellite television broadcaster that has a sales tie-up with Hikari. Yoshitaka Kitao, CFO of Softbank Corp., Japan's largest Internet investment group, is lobbying to have Shigeta removed as a nonexecutive member of the Softbank board. He joined last June, at the invitation of Softbank founder Masayoshi Son, at a time when the two were launching joint ventures. Kitao says cozy ties with Hikari risk Softbank's reputation. ''Mr. Shigeta is a problem, so I want him off our board,'' he says. Negative reports about the fast-growing company coincided with stock market jitters. In March, the monthly Bungei-Shunju journal ran an unflattering report--without identifying its main sources--depicting Shigeta as a cold individual who kept a 3-meter snake as a teenager and now raises tropical turtles in his office. It portrayed Hit Shop staff as overworked vendors out to destroy their competitors and also alleged that sales staff had padded their sales records. Shigeta later admitted that some Hit Shop franchises had indeed recorded bogus handset sales to get commissions from wireless operators. Hikari's losses stem largely from the failure to meet its sales target. The company paid its agents' commissions six months in advance for the number of handsets it expected to sell. Hikari later discovered that it had paid far more to its agents than it would get back from wireless operators. Over the past year, Shigeta also began to bet heavily on the Web, taking stakes in such promising U.S. ventures as Phone.com and Tumbleweed Communications, as well as U.S. transplants such as Liquid Audio Japan. Altogether, Hikari has spent some $570 million. Will the bets pay off? Not as long as investors shun Net stocks. One Hikari startup, Crayfish, which provides information-technology services for corporations, has languished since its initial public offering last month. Livin' on the Edge, a Web-site designer, has also tumbled in value since its debut in early April. To halt the slide in his fortunes, Shigeta has announced plans to reduce the commissions Hikari pays shops to one or two months in advance and to draw up more realistic sales targets. Since February, Shigeta has closed 165 Hit Shops and expects to shed 245 more by August, bringing the total to a more manageable 1,200. By the end of this month, he plans to unveil a plan to overhaul the entire company. If successful, these moves could help get investors refocused on Hikari's core business. The company still operates the biggest network of mobile-phone retail outlets in a nation with 55 million wireless subscribers. Hikari, which represents all operators with the exception of NTT DoCoMo, controls about 35% of the market. ''This is a real business, with real revenues and profits,'' notes Ian Macdonald, fund manager for Rowe Price-Fleming International Inc. in Tokyo. ''I think it has a lot of value.'' Trouble is, Shigeta is relying on the Net to help maintain that growth. Some analysts still rate Hikari a buy in the long term, but with the tech bubble losing air--and Shigeta's reputation with investors in shambles--he'll have prove himself all over again. By Irene M. Kunii in Tokyo _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Nosedive for a Net Highflier CHART: Hikari Heads South INTERACT E-Mail to Business Week Online

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