Let's face it: Tokyo-based Softbank (SFTBF) has had more makeovers than Madonna during the past decade. And the company's founder and boss, Masayoshi Son, has taken his share of knocks for being long on vision and short on delivering profits -- let alone shareholder returns. In the mid-1990s, he assembled a grab bag of assets such as the Ziff-Davis computer-publishing empire, a trade-show business, and software distribution, with mixed results.
By the start of this decade, Son had refashioned Softbank into a sprawling Internet holding company, and at one point he held equity stakes in hundreds of Net-related companies, from winners such as Yahoo! (YHOO) to eventual dot.com corpses such as online retailer Webvan Group.
A somewhat-humbled Son has spent the last five years recovering from the dot.com bust and trying to reposition Softbank once again -- this time as a more tightly focused telecommunications provider. Son may be no longer viewed as a visionary dot.com guru in Japan, but by coming up with a far more workable company strategy he's starting to regain some of the respect he lost.
Today, Softbank offers high-speed broadband, Internet-based phone service, and super-fast data communications for corporate clients. Next up, in 2007, Softbank will be one of three new licensees to launch a mobile phone network.
"TRACK TO RECOVERY." Is Softbank 3.0 finally the real deal? The short answer is probably yes. Softbank's stock, now trading at $32 a share, has roughly doubled from depressed levels last September. And on Feb. 10, it reported third-quarter operating profits of about $200 million, though that figure was somewhat inflated by asset sales.
Even so, for the fiscal year that ends in March, Softbank is on track to post its first full-year profit in five years -- after cumulative losses of about $3 billion over that period. "Softbank will continue to be on a track to recovery," says Atsuo Takahashi, an analyst with Mizuho Securities in Tokyo.
Probably the best news out of the earnings is that Yahoo! BB, its high-speed Internet service, seems on a firm profit-making track. Softbank owns a big chunk of Yahoo Japan, and the two offer 5 million subscribers speeds of about 10 megabits per second (roughly five times as fast as most U.S. systems), an array of streaming video content, and a popular Internet phone service.
MOBILE-PHONE TURF. Now that Yahoo! BB has a critical mass of subscribers, Son has been able to pull back on hefty marketing costs, which has improved profitability. So has the arrival of BBTV, which offers TV channels for an extra $10 per month and online movie rentals for $3 a film. These extra services have pushed up the average monthly bill to about $37 per month. Basic service runs about $25 per month.
Son, however, is still facing challenges. In 2004, he paid $3.1 billion for Japan Telecom, the country's No. 3 fixed-line provider. The deal was supposed to give Softbank entrée to scads of corporate clients interested in Internet telephony and high-speed data services.
Although the unit is still losing money, Son says he's confident of a turnaround -- but for now he still faces plenty of competition. "Companies like Softbank and KDDI are fighting for corporate clients," says Naoki Fujiwara, an analyst with Shinkin Asset Management.
Then there's Son's big push into Japan's highly competitive mobile-phone market in 2007. If Son can succeed, there could be very lucrative cross-marketing opportunities with YahooBB content and wireless broadband, figures Philip Sugai, a marketing expert on Japan's mobile-phone industry. A Yahoo BB subscriber, for instance, could start an Internet transaction at home on his personal computer and then pick it up on his mobile phone while commuting to work.
FINANCIAL TONING. A Softbank-branded phone would also have access to some of the cool content already available to Yahoo! BB customers. "He has all the pieces, and you could start talking about sharing files across different devices," says Sugai.
Of course, cracking a market dominated by the likes of NTT Docomo (DCM), KDDI, and Vodaphone (VOD) will be a tough slog. Yet if Softbank can remain profitable, Son has some financial firepower at his disposal.
First, Son has managed to whittle Softbank's long-term debt by some 60% over the past year, to about $2 billion. The company is also sitting on some $20 billion in unrealized gains from strategic stock holdings in UTStarcom (UTSI), Yahoo, and other Net companies.
At any rate, Softbank is starting to look like a company with focus, an identifiable strategy, and an ability to earn steady and reliable profits. That hasn't been true of Softbank in a very long time. With luck, Son won't have to engineer any more facelifts at Softbank for a while.
Bremner is BusinessWeek's Asia regional editor based in Hong Kong
with Hiroko Tashiro in Tokyo
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