Redherring interview on SoftBanks adjustment

SoftBank and Masayoshi Son

Helped RedHerring with an interview on the recent SoftBank accounting adjustment. The article is entitled “Softbank Falls on Lehman Cut” and appeared on the RedHerring website on August 28, 2006. Our company also recently advised a major global financial institution on related issues and risk issues.

Here a short summary of what I said

Essentially Vodafone-Japan is a company which has been going downhill in many ways for the last 4 years, they lost a lot of subscribers, and there has not been enough investment in equipment and staff, etc. For that reason and other reasons Vodafone sold the Japan operations this March to Softbank (read our report on SoftBank here).

Japan’s mobile market is really difficult, and there is tough competition. There is much trust in the entrepreneurial skill of Softbank Chairman and founder Masayoshi Son – only through his reputation and track record could Softbank attract US$ 15 billion in bank loans to acquire Vodafone Japan KK. Personally I have a very high opinion about Masayoshi Son’s abilities – and I think there is a high chance that he will succeed to turn round this company. Many people feel so, otherwise Son would not have been able to obtain the finance for the deal. Masayoshi Son has built not just one, but many successful companies, and he is maybe the strongest driving fource behind Japan’s internet revolution.

I think for the turnround to be successful will take quite some time, and probably the shares of Softbank will go up and down many times before the company is turned round. I am not a share holder of Softbank, but my thought would be that this is really an investment for the longterm, unless you are playing on shortterm fluctuations which some investors also do. But then you have to understand exactly what you are doing and live with the risk.

Regarding the revaluation of the plant (mainly base stations, antennas, backhaul, computer systems etc) of the company, I am not an accountant so I cannot comment on the accounting issues and regulatory issues here.

However keep in mind that Vodafone has last year written off about US$ 50 bililon mainly for the Mannesmann acquisition. Softbank has not written off anything as far as I understand it, they converted plant into good will which as far as I know increases the period of write off from 10 to 20 years. But was I said, I am not an accountant.

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SoftBank rebrands Roppongi store from Vodafone red to SoftBank white/silver

SoftBank rebrands Roppongi store from Vodafone red to SoftBank white/silver

SoftBank acquired Vodafone’s Japan operations and lost no time to rebrand the company

Speed is one of SoftBank’s success factors

On March 17, 2006 SoftBank announced the acquisition of Vodafone Japan with co-investment by Yahoo KK, sealing the end of Vodafone’s operations in Japan, and Vodafone’s exit from Japan.

SoftBank did not lose a moment to start turning Vodafone KK around, within a few days Vodafone’s former headquarters were moved to SoftBank’s headquarters in Shiodome, and most Vodafone expatriates were sent back to Europe. If you are interested to know why Vodafone decided to sell Japan operations to SoftBank and quit Japan, you can read many details here.

Yesterday (August 26, 2006) SoftBank opened the new Roppongi flagship store. SoftBank’s white/silver/grey colorscheme replaces Vodafone’s bright red:

Rebranding Vodafone KK's former Roppongi flagship store to the SoftBank brand, after acquisition of Vodafone KK by SoftBank
Rebranding Vodafone KK’s former Roppongi flagship store to the SoftBank brand, after acquisition of Vodafone KK by SoftBank
SoftBank rebrands the former Vodafone KK flagship store in Roppongi
SoftBank rebrands the former Vodafone KK flagship store in Roppongi

Understand Softbank: our report: “SoftBank today and 300 year vision”

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YAHOO and Google’s mobile strategies

Yahoo and Google mobile strategies: Google starts mobile operations in Japan by partnering with KDDI, Yahoo KK joins with SoftBank to acquire Vodafone Japan

Japan is a couple of years ahead of Europe and US in mobile communications by most measures

What are GOOGLE and YAHOO doing in Japan’s mobile sector?

GOOGLE started mobile operations in Japan by partnering with KDDI (Japan’s No. 2 mobile operator with about 25 million mobile subscribers) to develop mobile search.

YAHOO-Japan made a large step forward when SoftBank acquired Vodafone’s Japan operations in March this year

On March 17, 2006, SoftBank and Yahoo KK (Yahoo Japan) acquired Vodafone-Japan.

SoftBank’s latest mobile phones include a “Y” = YAHOO button:

SoftBank's Yahoo button
SoftBank’s Yahoo button

Yesterday, August 26, 2006, SoftBank opened it’s new flagship store in Tokyo-Roppongi including a YAHOO-Spot:

SoftBank opens Yahoo-spots within the SoftBank stores
SoftBank opens Yahoo-spots within the SoftBank stores

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SoftBank transforms former Vodafone Roppongi flagship store

SoftBank rebrands Roppongi store from Vodafone to Softbank

Speed is one factor for SoftBank’s success

Following the acquisition of Vodafone-Japan, SoftBank quickly turns round the company

Today, August 26, 2006, SoftBank (read our report on SoftBank here) opened the remodeled and rebranded Roppongi flagship store. The SoftBank Roppongi store is designed in light colors using a color scheme including mainly white, silver and grey, replacing Vodafone’s red. While Vodafone focussed on cost-cutting in Japan, SoftBank is now investing heavily, creating new stores and hiring store managers and assistants to revive and expand the chain of SoftBank stores.

“Flagship” stores are a concept which Vodafone introduced into Japan’s mobile industry – before Vodafone’s entrance to Japan, DoCoMo, J-Phone and KDDI/AU did not have specific flagship stores. Vodafone opened a flagship store in Shibuya, and shortly afterwards KDDI opened the KDDI Designing Studio in response. Because Vodafone’s initial Shibuya flagship store is in the middle of Shibuya’s entertainment district, the Roppongi-store, which was newly acquired by Vodafone, took a flagship role.

Vodafone recently decided to terminate business in Japan, and sold all Japan operations to SoftBank – Vodafone’s investment in Japan was the largest investment ever by any European company in Japan, about 7 times larger than Renault’s initial investment in Nissan…

This picture shows the flagship store in the new SoftBank dress, which opened on August 26, 2006

SoftBank's Roppongi store
SoftBank’s Roppongi store

This picture shows the flagship Roppongi store before (left hand picture) and after (right hand picture) the brand change from Vodafone to SoftBank. The SoftBank branded store opened on August 26, 2006:

Vodafone's former Roppongi flagship store rebranded as SoftBank store
Vodafone’s former Roppongi flagship store rebranded as SoftBank store after SoftBank acquired Vodafone-Japan

An elegant color scheme based on silver/white/grey replaces Vodafone’s red:

Vodafone's x-Roppongi flagship store rebranded as SoftBank store after SoftBank acquired Vodafone Japan
Vodafone’s x-Roppongi flagship store rebranded as SoftBank store after SoftBank acquired Vodafone Japan

SoftBank’s white/grey/silver color scheme replaces Vodafone’s previous bright red dress – the “YAHOO-Cafe” (there is no coffee…) represents SoftBank’s strong cooperation with YAHOO-Japan – SoftBank is largest shareholder of YAHOO-Japan:

SoftBank Roppongi store
SoftBank Roppongi store
SoftBank Roppongi store
SoftBank Roppongi store

SoftBank’s 705SH mobile phone by SHARP includes a YAHOO-Button for direct access to YAHOO-Japan mobile content and services.

Yahoo! button on SoftBank phones
Yahoo! button on SoftBank phones

SoftBank’s flagship store includes a YAHOO spot – at the moment the YAHOO-spot is an empty place holder. The YAHOO-Spot is labelled YAHOO-Cafe – but there is no coffee…

Yahoo! Cafe inside the SoftBank store
Yahoo! Cafe inside the SoftBank store

SoftBank’s phones are presented on surfboards:

SoftBank mobile phone display
SoftBank mobile phone display

Understand Softbank: our report: “SoftBank today and 300 year vision”

pdf file, approx 120 pages, 47 figures 18 photos, 7 tables
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iPhone for Japan? iTunes/iPod phones?

More Chaku-Uta mobile music downloads by KDDI in Japan than by Apple's iTunes globally

There is a lot of discussions about whether Steve jobs is going to announce an iPhone or iPod-Phone at the Apple Computer Developer’s Conference in SF – according to the headline report on Saturday May 13th, 2006 in Nihon Keizai Shinbun ( the world’s largest business daily ) it’s already known since May this year that Apple and SoftBank are developing such a joint mobile phone with iPod and iTunes functions.

On March 17 SoftBank announced the full acquisition of Vodafone’s Japan subsidiary – the former J-Phone –  jointly with YAHOO-Japan as a co-investor – so with about 15 million mobile subscribers in the world’s most advanced mobile market (Japan), SoftBank/Apple will have the firepower to make such a phone a success, provided it’s tuned to Japanese consumers’ needs and dreams – my guess is that it probably will be.

By pure coincidence, the Apple/SoftBank headlines appeared one or two days after DoCoMo and Microsoft announced a music cooperation.

Apple/SoftBank iPod mobile phones coupled to iTunes could have quite a lot of impact on Japan’s music industry: about 20% of Japan’s music sales are to mobile phones. Of all music downloads in Japan about 6% are fixed line internet downloads, and 94% are music downloads to mobile phones: internet music downloads are almost neglibile in comparison to mobile phone music downloads.

Therefore even if iTunes has a huge market share in the fixed line internet world, iTunes  cannot have much impact in Japan overall if limited to fixed line  internet downloads. iTunes downloads to mobile phones will change the business models of Japan’s music industry – at the moment music downloads to mobile phones cost a lot more than iTunes downloads. An iPod/iTunes music store could reshape the mobile music market in Japan.

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M-Commerce towards US$ 100 billion

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” title=”Eurotechnology report on mobile payments and mobile commerce” target=”_blank”>Mobile commerce (the mobile phone equivalent of mailorder) exceeded mobile content (music, weather, news, etc) first in 2004 in Japan and is on the way to reach US$ 100 billion in the not too distant future. Read more about Japan’s m-commerce sector below.

mobile commerce and mobile content in Japan
mobile commerce and mobile content in Japan

US$ 0.5 Billion killer application for m-commerce?

We estimate that m-commerce (the mobile equivalent of mail order, or instant purchase of goods and services) has reached approximately US$ 10 billion per year in Japan, and most likely exceeds this mark already. Mobile phones are used in Japan to purchase many different types of products from music, to train tickets, air tickets, event tickets, books, and even cars. In our work for our customers we analyzed in detail a “killer application” for mobile commerce, where in Japan a single mobile website achieves about US$ 0.5 billion in annual sales.

read about mobile commerce (and the US$ 0.5 Billion/year killer m-commerce site…

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SoftBank a small fry?? … writes BusinessWeek

SoftBank and Masayoshi Son

Comparing Apple and SoftBank

Is SoftBank really smaller than Apple Computer?

In my 20 years of business and work between US/Japan and EU/Japan, I am often surprised how Western executives underestimate economic size and strength of Japan and it’s companies – here is another example:
BusinessWeek writes about the SoftBank/iPod phone, and writes that former Apple executives says that Apple’s CEO Steve Jobs wouldn’t normally tie up with a “small fry” like SoftBank

Is SoftBank really a small fry? Let’s check it out:

SoftBank a small fry? Apple vs SoftBank revenues

Softbank + Softbank-Mobile (former Vodafone KK) combined have substantially higher revenues than Apple Computer for financial years 2005 and 2006 - so clearly Softbank is no 'small fry' at all compared to Apple Computer
Softbank + Softbank-Mobile (former Vodafone KK) combined have substantially higher revenues than Apple Computer for financial years 2005 and 2006 – so clearly Softbank is no ‘small fry’ at all compared to Apple Computer

Revenues of SoftBank + SoftBank Mobile (x-Vodafone KK) were on the order of YEN 2500 Billion (US$ 22 Billion) for the financial year that ended March 31, 2006.
Revenues of Apple Computer were US$ 13.9 Billion for the year ended Sept 24, 2005. – So in terms of revenue the new SoftBank Group (including the recently acquired x-Vodafone KK) is almost twice as large as Apple Computer.

SoftBank a small fry? Apple vs SoftBank market capitalization

On May 19, 2006, market cap of SoftBank and SoftBank Mobile combined was about 20% less than Apple's market cap
On May 19, 2006, market cap of SoftBank and SoftBank Mobile combined was about 20% less than Apple’s market cap

Market capitalization of Apple Computer was US$ 54.9 Billion on May 19, 2006. Market capitalization of SoftBank (US$ 28 Billion) plus SoftBank Mobile Corp (US$ 15 Billion) was on the order of US$ 43 Billion.

BusinessWeek took note of my letter and published a correction on May 21, 2006, which you can find here and here.

More about Japan’s telecom industry sector in our JCOMM-Report
More about Softbank in our Softbank report

Note added on August 13, 2008:

When the iPhone was actually introduced to Japan by SoftBank in 2008, Mr Tetsuzo Matsumoto, CTO and Board Member of SoftBank-Mobile and myself were invited by the Foreign Correspondents Club to hold a Press Conference to comment on the iPhone introduction to Japan – you can find the records here.

Preview – SoftBank today and 300 year vision report:

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