About Tokyo Stock Exchange Turbulence on CNBC and RedHerring

Wednesday January 18, 2006 I was interviewed live on CNBC’s “Worldwide Exchange” news program about the turbulence on the Tokyo Stock Exchange following lower than expected quarterly earning reports by Intel, Yahoo and IBM, and a sell-off of Livedoor shares. Here is a summary of what I said in the interview:

Overall I am very optimistic for Japan’s economy, and I expect that the stock markets will recover soon.
There are short-term issues, mid-term issues and long-term issues.
Short-term, there is impact by Intel’s lower than expected results in the semiconductor sector, especially on Tokyo Electron, which shares also dropped substantially. However I think that the strong drop in share values on the Tokyo Stock Exchange (TSE) was much more an effect of the Livedoor issues than disappointment with the US high-tech results.

The Livedoor issues are temporary and not significant for the bigger picture in Japan, and will be resolved very soon by the Police, Stock Exchange and the other relevant authorities. I don’t expect long-term impact. There may be some changes in rules concerning M&A.

Concerning the Tokyo Stock Exchange (TSE): the capacity of the TSE seems to be around 4 million transactions/day, and the Chairman of the TSE stopped trading when the transaction volume started coming close to this limit. This shows the IT limitations of the TSE. This would be less serious if it was an isolated incident, however during the last year there have been several IT related incidents, such as the incident where erroneously 600,000 shares were sold at a price of 1 YEN, instead of one single share for YEN 600,000, which caused huge losses, and was not caught by the trading software, and there have been a number of similar glitches recently. So clearly the IT infrastructure needs improvement. However, from what I have seen in Japan, I expect now a lot of serious committee work, and I expect that the IT systems will be fixed in due course – I am very confident about that.

So overall I think Japan will come stronger out of these temporary issues.

Regarding the question of human issues vs technology on the Stock Exchange, I think both human issues and IT are important and both must be working well.

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Japan’s mobile operators’ profits

Overall Japanese mobile operators generate on the order of US$ 10 Billion/year in profits with a rising tendency.

US$ 10 Billion/year profits attract three new entrants to Japan’s mobile markets (eMobile, YAHOO-BB and IP-mobile), mobile virtual operators, and attracted Vodafone to acquire J-Phone some time ago.

DoCoMo’s domestic profits in particular have been continuously rising to reach the spectacular figure of US$ 8 billion/year recently. However, conspicuous is a US$ 10 billion hole (shown in bright red color in the figure below) in DoCoMo’s otherwise impeccable record. This US$ 10 billion losses are DoCoMo’s write-offs for investments in KPN-Mobile (Netherlands, Germany and Belgium), Three-Hudginson (UK) and AT&T-Wireless (US). DoCoMo has withdrawn from all three investments and has written off about US$ 10 billion. Most companies on planet earth will not survive a US$ 10 billion write-off – however, DoCoMo’s incredible domestic performance allowed DoCoMo to survive this US$ 10 billion write-off without much trouble.

Vodafone’s performance in Japan is rather mixed – the results show a zig-zag line with profits one year and losses the next and average profits around zero, if performance is averaged over several years.

Net income of Japan's mobile operators showing NTT-DoCoMo's losses on international investments in red
Net income of Japan’s mobile operators showing NTT-DoCoMo’s losses on international investments in red

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Japan’s full 2005 cellphone subscriber data

Japan’s 2005 cellphone subscriber data show:

  • Japan’s cellphone market continues to grow by more than 4.5 million subscriptions/year
  • DoCoMo and KDDI are continuing their head-to-head race
  • Since June 2005 Vodafone is consistently gaining customers again (but losing market share)
  • Willcom’s turn-round is continuing, and Willcom is consistently gaining market share. Willcom is outperforming Vodafone as far as gaining new subscribers is concerned

Month-by-month gain/loss for 2005:

Annual subscriber growth for 2001-2005 shows DoCoMo’s and KDDI’s head-to-head race, Willcom’s turn-round and Vodafone’s difficulties to apply GSM-style management to Japan:

Month-by-month growth during 2005 shows that KDDI is moving TuKa customers to AU. (TuKa uses a legacy PDC network – a technology developed by KDDI’s competitor NTT, while AU uses Qualcomm’s CDMA2000):

More details in our J-Comm report

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