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SoftBank will become more aggressive in AI after profit and asset sales
(Bloomberg) — SoftBank Group Corp. laid out plans to become more aggressive in artificial intelligence and other areas, after reporting a second-quarter profit and a rise in the value of assets including Arm Holdings Plc.
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The Tokyo-based company posted a better-than-expected net profit in the March quarter, helped by gains from investment in the holding company and derivatives contracts. A surge in Arm shares since its initial public offering last year has helped lift SoftBank’s net asset value to a record 27.8 trillion yen ($178 billion), nearly double the previous year’s total. .
This gives the company the financial resources to pursue new strategic investments, said SoftBank Chief Financial Officer Yoshimitsu Goto.
“Not taking risks constitutes the biggest risk for us,” said Goto, who previously served as a brake on billionaire founder Masayoshi Son. “We have our sights set on a variety of challenges.”
Son plans to return to the offensive after years of mistakes at the Vision Fund, the huge investment group he created to bet on startups. The fund is now constantly selling and writing down assets in its portfolio as Son turns his focus to AI and semiconductors. SoftBank had accumulated a cash pile of ¥6.2 trillion at the end of March.
Son is seeking up to $100 billion to fund a chip venture to compete with Nvidia Corp. and supply critical semiconductors for AI, Bloomberg News reported in February. The Japanese company is also in talks to acquire British semiconductor startup Graphcore Ltd., Bloomberg reported.
Read More: SoftBank Sells Vision Fund Assets as Son Pivots to AI, Chips
Goto said SoftBank’s loan-to-value ratio has fallen to 8.4%, close to an all-time low and far below the company’s target of 25%. This is one of Son’s favorite metrics for determining whether the company is properly balancing risk and opportunity.
“This could be very low and at a very safe level,” Goto said of the NAV level, suggesting SoftBank may have the firepower for more offensive moves.
SoftBank made a net profit 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, exceeding expectations.
The Vision Fund reported a surprise loss of ¥96.7 billion as it slashed a series of valuations on the second Vision Fund’s portfolio of hundreds of unlisted startups. This represented about ¥54 billion in realized and unrealized losses at companies such as JD Logistics Inc., Better Holdco Inc., DingDong Ltd.
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“Arm’s IPO and share price recovery were notable positives,” Satoru Kikuchi, senior analyst at SMBC Nikko Securities, said in a note ahead of earnings. “Our focus is on strategic investments led 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 created seven years ago. The Vision Fund divested $2.5 billion in assets in the fiscal fourth quarter, while investing just $120 million.
SoftBank’s attempts to leverage Arm technology and invest in AI services could be well received by the market, SMBC’s Kikuchi said. To increase investment funds, SoftBank could divest its stakes in T-Mobile, Deutsche Telekom or Arm. In the past, SoftBank has sold stakes in assets such as Alibaba Group Holding Ltd. to fund new forays and also bolster its balance sheet and buy back shares.
“What I want to know is their position on investments,” said Tomoaki Kawasaki, senior analyst at Iwaicosmo Securities. “After withholding investments for a while, they have hinted that they could return to activity.”
–With assistance from Momoka Yokoyama.
(Updates with executive commentary.)
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