SoftBank Corp

TSE:9434

Earnings Call Analysis

SoftBank: Robust Half-Year Performance

In the first half of 2023, SoftBank saw revenues increase by 4% and operating income grow by 6% with notable jumps across enterprise, media, e-commerce, and distribution businesses. Net income surged by 29%. Consumer business operating income slightly dipped by 2%, but growth in mobile subscribers is expected to flatten, reversing negative trends earlier than projected. The enterprise business revenue grew by 5% and 15% in operating income, while media and e-commerce saw a 2% revenue rise and a strong 28% jump in operating income due to organizational restructure. PayPay's consolidation drove financial business revenue up 2.9 times the previous year, with a 33% rise in PayPay's revenue. Satellite communication services commenced, aiming for broadband ubiquity with low latency tech.

Solid Fiscal Performance with Positive Long-term Initiatives

SoftBank has presented its financial results for the second quarter, highlighting a commendable increase in both revenue and net income. Revenue rose by 4% while operating income saw a 6% uptick. Encouragingly, net income soared by a robust 29%, underscoring a strong start to their medium-term management plan, with a remarkable 72% increase over projections. The company is well on its way to achieving its fiscal year targets, already at a 66% progress rate for operating income, showing a disciplined execution of its financial strategy.

Challenges and Growth in Consumer and Enterprise Business

In the consumer segment, a downward trend was observed with a 2.4% decline in revenue, although the expected recovery in mobile revenue during FY 2023 is ahead of initial projections. Despite a 2% dip in operating income for this segment, its overall progress rate is at 66%, aligning with the company's full-year profit forecast. Mobile subscriber growth is robust, and the company hit a notable milestone with 30 million subscribers. This strength is reinforced by the introduction of the Pay-Toku plan and revised mobile service price plans which have been well-received, indicating a potential for revenue growth and reduced customer churn. On the enterprise front, revenue is seeing a 5% year-over-year rise, led by a 15% increase in solutions revenue. Operating income in this segment also grew by 15%, showing a healthy trajectory in the company's efforts to solve social issues through innovative service offerings.

Media, E-commerce, and Financial Services Position for Future Growth

SoftBank's media and e-commerce business reported a revenue increase of 2% and a significant jump in operating income of 28%, following a strategic group reorganization. Financially, the consolidation of PayPay Corporation has been a factor, tripling revenues from the previous year's term. PayPay itself experienced a 33% revenue growth and achieved profitability for two consecutive quarters, suggesting sustainable growth. Moreover, PayPay's service expansion, especially in cashless payments, positions it well to capitalize on the increasing visitor economy in Japan.

Advancing in Nonterrestrial Networks

SoftBank is advancing its nonterrestrial network (MTN) project to bridge coverage gaps globally. They have reached a significant milestone by signing a partnership for bandwidth satellite communication services, intending to provide services with low latency equivalent to LTE and high-speed broadband. This innovation could revolutionize connectivity, especially in underserved regions, and represents a leap forward in the company's long-term strategic vision.

Earnings Call Transcript 2024-Q2

[Operator]

Thank you very much for waiting. We would like to begin SoftBank Corporation earnings results presentation for 6 months ended September 30, 2023. We would like to introduce today's attendees SoftBank Corporation President and CEO, Miyakawa. Board Director, Executive Vice President and CFO, Fujihara. Today's presentation will be broadcast over the Internet. Now President and CEO, Miyakawa, will give an overview of SoftBank consolidated financial results and business overview.

[Junichi Miyakawa, executive]

This is Miyakawa from SoftBank. We would like to introduce the results of the second quarter. However, today, in addition to the explanation of the first half results, we have a lot of progress on mid- and long-term initiatives please allow me for a slightly lengthy explanation. It will be around 40 minutes. So let me begin. First, the revenue was JPY [indiscernible] up by 4%. By business segment, the 4 businesses you see here enjoyed increase in revenues. The operating income was JPY 514.4 billion up by 6%. By business segment, consumer business saw a 2% decline in income while the enterprise, media, EC and distribution businesses posted double-digit gains. As for the financial business, Q3 last year, we consolidated PayPay. So if PayPay has been consolidated from the first half, the profit would have improved by JPY 7.3 billion. So therefore, the first half results are progressing well as designed for the year. The net income was up by 29% at JPY 302.1 billion.

So as the management indicator in our medium-term management plan, we would focus on net income. So we perceive that we are off to a good start. Here is the consolidated results, which show increase in both revenue and income, especially net income was 72% up, we are making positive progress.

Now the progress rate 66% for operating income and income was 72%. So we are making positive progress towards achieving the plan laid out at the beginning of the fiscal year. The progress rate by business segment is as shown here. The consumer business is it is stronger than initially expected is at the progress rate of 66%. Sales for summary, we are making a steady progress toward 3 goals set in the midterm management plan.

Now let me go through by business segment. Let me begin with Consumer business results. Revenue was down 2.4%. Mobile revenue, which we were aiming to reverse in our midterm management plan have been narrowing significantly so it will be almost flat. And we are assured at this time of the earnings results presentation so in the spring of 2021, there was an introduction of new pricing. Since then, we have been suffering from the impact of mobile service price reduction, but we are now seeing a reversal in FY 2023 earlier than our initial projections.

So we are also are seeing that we see a reversal during the full year of fiscal year 2024. So operating income in the first half was down [ 2% ] but operating income progress rate for consumer business is 66%. So as for our full year profit increase forecast, we should be able to achieve this. As for mobile subscribers, both net additions of main subscribers and net additions of smartphones were strong. So in the last fiscal year, 1.68 million net additions of smartphones were recorded. So we will continue to work towards this level this fiscal year as well. Cumulative mobile number portability in the second quarter remained strong as in the quarter first quarter and was all positive against DOCOMO KDDI [indiscernible] As for smartphone subscribers, it has been expanding steadily, up by 6%. So this Monday on November 6, as for our target at 30 million subscribers was achieved.

With this as a passing point, we will continue to exert our best efforts from October 3, we announced the revision of our mobile service price plans. The SoftBank brand has introduced a new Pay-Toku plan, which allows customers to earn many PayPay points if they use PayPay a lot and save on unlimited plans, they could save JPY 2,480. As for Y!Mobile to match the increasing debt uses year-by-year, we have lowered the price per GB so both plans have been very well received by customers. The subscribers are steadily enhancing so I would like to elaborate on that.

So as this Pay-Toku plan has a generous point reward in order for us to grow group companies it may appear that we are just capturing the sales promotion. However, it is not right. So we have calculated and implemented a return on our consumer business. For example, as you can see here, like Yahoo!Shopping, PayPay and PayPay cards, if a customer uses one of those, its churn rate is about 1/3 of smartphone subscribers who do not use these services. So not only to grow group companies, but to also further expand our customer base. So both have merits. Next is about enterprise business.

The revenue was up by 5% year-on-year with JPY 379.4 billion. Solution are doing well with 15% increase. Operating income was up by 15% with JPY 81.9 billion. The solutions revenue, especially solutions and recurring revenue is growing well at 18%. And so I say this is maintaining at a very good progress rate. So in our midterm enterprise plan, we have mentioned that our growth strategy is to create new businesses that will lead to solutions to social issues. So I would like to explain the progress we have made in these 2 fields. First of all, I'd like to report on our progress in the health care field. Sumitomo Life insurance and health care technologies have formed a capital and business alliance by combining Sumitomo Life Insurance's knowledge, wide knowledge with health care technologies, know-how and data, we will create new services in area of well-being.

Another progress is in the field of autonomous billings. They also made press offerings the other day. As known for the designing of Sky 3 Tokyo Dome with [indiscernible], we announced that we will establish the joint venture we would like to expand in the future. We'd like to expand autonomous building overseas as an advanced made in Japan technology.

Next, Media and EC business. Yesterday, in Yahoo made our financial results. So I'm not going to go into detail. Revenue was up by 2% to JPY 777.8 billion. Operating income was up by 28%. On October 1, reorganization of the group was completed. And Holding started as a Yahoo as an ongoing. operating company. For cross use search, commerce and fintech in those 4 spaces, they will implement those initiatives for further growth.

Next, financial business revenue, mainly due to consolidation of PayPay Corporation, was up JPY 209.5 billion, 2.9x bigger than the same term last year. For operating income, after consolidation of PayPay Corporation in third quarter next year, we saw a decrease. But if we had consolidated from Q1 last year, performance improved significantly in real term. For PayPay's consolidated revenue, it was up by 33% to JPY 99.5 billion in the first half. For consolidated EBITDA for Pipa, JPY 4.1 billion. by the quarter, they posted profitable results for 2 consecutive quarters.

We added 3 Taiwanese cash late cashless payment services in Taiwan. As a result, we are able to cover up to 70% of foreign visitors to Japan. So PayPay's GMV should be improved further, thanks to this wide coverage of tourists to Japan. For SP payment service in terms of GMV, it was JPY 3.8 trillion or up by 21% year-on-year, especially -- in non-telecom area, it was up by 29% year-on-year. They keep a high growth rate. Operating income post double-digit growth again. As for PayPay securities, Cumulative number of point investment users exceeded JPY 12 million as of end of September. So it was the one of the biggest customer base in terms of asset management.

So we've been actually working on the nonterrestrial network called MTN for some time now. I would like to talk about the progress of this project. So this shows the direction we are taking with MTN by integrating satellites and HAPS such as when we are installing with existing mobile networks, we would like to realize a word with no out-of-coverage areas. We will explain each of these in some progress has been made In September 2023, we signed a distribution partnership agreement with [indiscernible] so we plan to provide guaranteed bandwidth satellite communication services. OneWeb's satellite communications service provides radio waves from an attitude of 1,200 kilometers closer to the earth than geostat satellites. So latency will be about 30 miliseconds.

So enabling the connections with latency equivalent to LTE. It also enables communication at up to 195 mega [indiscernible] and 32 mega bps uplink September 27 onwards. Selling business service has started. So since the communication is from [indiscernible] an altitude of 550 kilometers the latency is even lower than OneWeb, just slightly lower. So this is targeting the consumer market. So this is designed for the best effort type. So broadband service will be provided by 2 types. Of satellite to meet the needs of customers.

And I would like to share with you the progress of HAPS. We have been commissioned to conduct 2 studies by NICT, which is under the jurisdiction of the Ministry of Internal Affairs and Communications. The commission fee is JPY 13.6 billion. One, this is for emergency area coverage in the event of a disaster such as earthquakes or flood. So when the base stations is damaged by the divestor in order -- there are some existing base stations. So in order not to interfere with the radio waves of surviving base stations, the system automatically controls and the system is for -- this development is for that system. And this technology has already been patented, and we will accelerate development towards its realization. And the second is about high-speed, high-capacity HAPS communications on the right side of this slide.

High capacity on the radio side mounted on HEPS was successfully achieved with a cylinder antenna, which has already been proven so this research is the development of a system for high-speed, high-capacity communications called [ Fidolink. ] So once this is achieved, 5G beyond 5G and 6G. So when the capacity on the device side becomes bigger and bigger and only satellite will not be able to cover the MTN will be able to provide mobile direct communications so that broadband can cover each other. So this structure will be realized. So this research is for that. And since 2020, we have conducted POC in Rwanda. We would like to touch upon that progress.

So we were the first in the world to successfully conduct a 5G communication test from the [indiscernible] for the HAPS demonstration experiment. And so the difficulty is in the adjustment would be a temperature. So in such harsh environment so this equipment developed by our company has performed beyond our expectations in the stratosphere sphere. As you can see on the right side, we I believe that this is an important step towards our goal of eliminating the digital and educational disparities. We plan to work with the London government to provide HAPS in Wanda and other parts of Africa in the future. Well, in fact, we are in a leading position in this HAPS field.

So this slide shows the number of U.S. patents in the HAPS area. As you can see, Qualcomm, Boeing, Ericsson and Google, even you compare to these companies, we are in stereo position in terms of patent competitiveness. So we will continue to accelerate our R&D with a view to beyond 5G.

Next, I'd like to share with you our progress towards building next-generation social infrastructure. As we explained and meet long plan, in terms of distributor data center, let me touch upon a core brain. We bought a data center in Tomakomai in Hokkaido to start operating core brain. When it's completed, it should have 300-megawatt with only green energies. The first phase construction should be completed in FY 2026 and JPY 65 billion is the cost required. Of that JPY 30 billion is going to be subsidized by a [indiscernible] or Ministry of Economy, Trade and Industry.

Why Hokkaido, let me explain. First, on the left-hand side, as you can see, Hokkaido is a cluster of digital industries. Like Kumamoto, it has drawn a lot of attention recently. Area spreading from Sapura [indiscernible], there is a concept called Hokkaido Valley to make it like Silicon Valley in the U.S. Secondly, many landing station should be built. And it shows opportunity for the area to become globally competitive.

Submarine cable network. And Hokkaido has abundant renewable energy. And with Ocado as a stepping stone, we would like to strive for achieving mid- and long-term goal. Next, let me talk about HPC or high-performance computing and a platform and quantum computing in those spaces, we have made progress, which I would like to share with you today. First, talking about the AI platform. We announced that we will invest in building a platform to build homegrown Japanese LLM as planned, the infrastructure started operation in September by the end of year '24, we should be able to reach 350 billion parameters with the -- when it comes to quantum computing.

Together whether we can, we have been working on research and development for future commercialization. This technology should be able to handle very enhanced computing and this technology is something we are very much interested in. However, there are challenges around current quantum computer. First, microscopic noise could have an impact on computational errors. So this is really requiring sensitive operation. And also at the moment, it's not good at computing for a long time.

And very cold temperature down to absolute 0 should be kept and liquid helium is needed to keep calling sometime around in 20 years, it can run in room temperature, but still, there is a challenge. So it's important to run quantum computing and supercomputing in a very coordinated manner. So we work with [indiscernible] to develop platform and software to integrate quantum computing with a supercomputer.

And we can do orchestration, like on quantum computing as good as something then that computation should be done by quantum computing, Likewise, if some computing is needed, which supercomputing is good at, then open computing should be responsible for that. And this initiative is also commissioned by Meti. Four, investment for the future growth, we issued [indiscernible] pipe class share.

Fixed dividend annual rate was 2.5% and issue amount was JPY 120 billion. It was listed on Tosha Prime. On November 2, 2023. The capital should be mainly used for growth investments related to next-generation social infrastructure. To summarize my presentation today. First net income, which is 1 of our focuses and mid long-term plan increased by 29% and progress rate so far is 72%. We are enjoying a steady growth.

Second point, we announced on October 3 new mobile service price plans. On the third point, PayPay achieved a positive consolidated EBITDA for 2 consecutive quarters. Again, we are looking at very steady, healthy growth. Last but not the least, I share with you with progress in next-generation social infrastructure initiatives. We continue to strive for our philosophy of information revolution, happiness for everyone. Thank you very much for your kind dotation today.

We will now open it up to a Q&A session. Questions will be taken first from the audience on the venue then from the Zoom press followed by Zoom analysts, institutional investors. [Operator Instructions] wait for your nomination. Once you have access to Zoom, please turn off the live webcast to prevent howling. We would like to receive questions from as many people as possible. So please let me the questions to 2 per person. If you were nominated, please state your company name and name first.

President Miyakawa, please move to the center of the stage. So in the center and the middle area, wearing black jacket, please? This is Ishikawa Freelancer.

[Unknown Analyst]

So it's not directly related to today's presentation yesterday at NTT CEO, Shimada talked about the NTT low especially the time of the public corporation, the shares would belong to the government. I need your comment on that. And patient 3 megahertz I just feel like they were very unlucky. So what is your thought on that?

[Junichi Miyakawa, executive]

I think it's for your questions. It's already hard questions from the beginning. Well, just to give you my thought in one word. Regarding NTT, I believe that they just employed [indiscernible] So the inherited assets is actually operated by managed by NTT East West and NTT holds 100% of those shares and the public corporation inherited assets so NTT sounded life, they have nothing to do with those, but they actually own the assets. but they do not have no notion on holding the shares myself. If no, then they should return those shares back to the government. That's my feeling.

So well, now they are in the private sectors. But those who are in responsible positions insisted such things. But I feel that it's just the personal opinion of him. But a lot of the experts say it doesn't make sense. So it's an important valuable voice and this, every single voice has to be mingled and under this. It's going to be a little bit lengthy, but NTT Law is literally low if they were to abolish laws. This is being discussed in the LDP discussion, but abolishing law has to be discussed in the diet.

This is the right way as a law abiding nation. What I don't like most is that NTT and others have completely opposite opinions. So if they were to pursue this, and we would never be convinced so we, as telecommunications companies, we were collaborating as needed, and we were leading this industry it's not right if we were divided because of this. So we had to be very open, and we had to discuss openly, not decided by one side. So this tumor is not going to be eliminated in the next 10 or 20 years.

So for Japan, for telecommunications industry in Japan, this is such a disappointing situation we are going through. And for both NTT and LDP. I sincerely hope they would sit together once again and think well. So regarding your second question, platinum band. It's a bit disappointing plan. I don't -- I wouldn't say that we picked up the backlog lottery, but even though the bandwidth is still narrow with and results are not the same, which I have experienced. So if you have three mega then you could cover a lot. But if the number of users exceed more than 10 million or more, then this bandwidth would not be sufficient. So this has to be concerned well.

So 1.7-year health and so the certain tuning is needed and it requires knowledge and experience. But 10,000 base stations over 10 years or JPY 50 billion investment, which I think it would not be possible. So back then, we were also crazy about acquiring a number of base stations, and we kept constructing and in CapEx back then was JPY 2 trillion. So even we were struggling, and we did so hard, but still we were criticized that SoftBank doesn't get well connected. So the I understand it's really difficult at the beginning under such difficult situation.

If we SoftBank as a company could be of any help to them, then we would like to consider that, but the September 2026 will be the net. So it would be only like 6 months to go.

So this year and next year hard work has to be made, but so if we were asked to sit at this table for discussion, we would like to do, but this speed will not be able to achieve 700 mega. So various discussions mean like 1.7 gigahertz and 700 megahertz were combined, the necessary antenna positions our base stations, for example, if any of our base station locations are helpful, if we could if our base station locations could be any help to them and then we could -- we'll be happy to join that discussion.

So for us, we would like them to utilize us as well, which because I really understand as I went through the same situation -- if we could be any help to them, we will listen to them. And there should be something that we could do like we could lend backhaul. And if we could cooperate in that.

[Unknown Analyst]

My name is [indiscernible] from our newspaper. I have a question about ARPU. KDDI has shown around ARPU, they said, and the question is what about you? You mentioned that in the consumer business, you are beginning to see the baton. And also, you announced a new price plan in October. So let me share your view, [indiscernible] us with your view about ARPU.

I believe that we are looking at upward trend. But in general, for the next few years, from ARPU's perspective, maybe the performance will be flat. I'm happy to say that we are enjoying a net add the more customers we have, the better the performance will be and ARPU is not as bad as we anticipated. That's what we are seeing at the moment.

Of course, ARPU, the number of customers see something that you look at. So ARPU stay the same and the number of customer goes up and then and formula should work for us. So again, ARPU may not grow as much as we hoped. But still, I don't think ARPU is going down even further.

The revenue should be recovered because we are gain a lot of customers. And Apple's decline rate is smaller and smaller.

[Operator]

Any other questions? The left area, the second row in white shirt. And the second row in the middle.

[Unknown Analyst]

I am Nakamura from Nikke iBP. I would like to ask about the enterprise business. About 2 years or so, 2 years ago or so beyond Japan beyond the carrier or the ones that enterprise were to realize. So after 2 years or so, what's the positioning of enterprise business? And for now, JPY 700 billion or so, and operating income is pretty well. So including the solutions percentage, what do you think about the enterprise business?

[Junichi Miyakawa, executive]

Yes. Back then, I joined the enterprise reporting and -- so it was about 2 years -- 2.5 years ago, I also explained about the enterprise business and then talked about beyond Japan, beyond a carrier and as for beyond carrier we have taken some initiatives. One is health care, autonomous things and more, we have taken initiatives. And I have explained the ones have come to realize. And so the important infrastructure for Japan in the next 20, 30 years.

So the enterprise business would contribute to the future of Japan, we are working together. So for water we reuse seater infrastructure and -- so we are working together with the government as well. And for Beyond Japan, we have taken some initiatives, which I believe will be some opportunities to talk about to you. And so through enterprise business, there are some businesses going overseas and also consumer side. So we see a steady progress. We have a big dream in that. And so this time, JPY 150 billion is the target for us which we are progressing well towards that target.

So I'm not going to tell you exactly when, but JPY 250 billion. And so we have a very clear schedule time line to achieve our target sharing together with our employees. So beyond the carrier, beyond Japan from different angles, we have to work from all these angles to achieve our target.

[Operator]

Next question is from gentleman with a great jacket please.

[Unknown Analyst]

Nagoshi ago from NHK. Maybe related to your business directly, [ Kioxia, ] Western Digital and integration has been suspended. What your view? Either Kioxia or Western Digital, are you considering investing in either of the businesses, for example?

[Unknown Executive]

We don't have any consideration for that. Kioxia, especially in memory, NAND memory is something that Kioxia is very good at, and we respect for that, but we are not an expert in that sector. So we don't have a particularly strong interest in that industry.

However, I think that's one of the technologies that we have to protect in Japan. And if we can play very helpful, supportive role for them, you'll be happy but have we done due diligence or have we discussed with the management 100% no. So we will keep watching how things go.

[Operator]

Any other questions? Left side, the very front row, gentleman please.

[Unknown Analyst]

[indiscernible] I have 2 questions. One about the progress on Pay-Toku. It's been only a month or so since launched. What's the starting situation. I would like you to elaborate on that. And the second, KDDI, another one, KDDI [indiscernible] compared to KDDI's initiative? What's your situation? And the second question is about HAPS. One with StarLink-related things the direct mobile direct communications will be available for Japanese consumers.

[Junichi Miyakawa, executive]

So first, Pay-Toku unlimited plan, fortunately, it's doing really well. So far, Y!Mobile is actually acquiring the volume. But right now, the pay too unlimited plan, based on the daily report, I see has momentum compared to like KDDI Manitou, I do not have appropriate comparison, so I cannot give you a answer to it. However, mobile new price I believe, is well accepted by consumers. So SoftBank brand is doing well. So which is a bit different feeling that I had -- so about NTM. So in terms of mobile direct, with existing satellite, we haven't had a thorough discussion around debt yet.

But we need to continue starting on that. And so maybe at lower low earth OB, we should be able to do the same. But one day, one of Japanese companies should have the lower earth orbit and then build a Japanese system to realize this and that will be ideal the communication network from the Sky and also the earth orbit. So with the satellite utilizing many different devices. So this technology would be very useful which we also like to participate in this.

[Operator]

Any more questions on the floor?

[Unknown Analyst]

Also for [indiscernible] First question about Rakuten. You mentioned that you could propose vending backhaul to Rakuten, for example, according to the plan in 2 years or maybe as early as next year, [indiscernible] wants to achieve certain target? And do you think that they cannot achieve the target that's why you mentioned that you opened an idea about lending backhaul, for example.

[Junichi Miyakawa, executive]

We have not discussed specifically with Rakuten, so we are not sure to what extent they have progress. I just talked about something that I just came up to me earlier. But if there is anything we could help in terms of backhaul or site sharing or negotiation with the landlord and helping them to find alternative location. If there is anything that we could help, we are open to help them. That's what I meant earlier.

[Operator]

Next question.

[Unknown Analyst]

According to media recently. Mr. Altman and Mr. Ibe and Mr. San discussed to develop AI powered iPhone. Have you talked with Mr. San about that? And if they make AI-powered iPhone would you like to exclusively market such device?

[Junichi Miyakawa, executive]

So ask Mr. San in his capacity as President of SoftBank Group. So I, myself, have no comment.

[Operator]

Any more questions? Any other questions? In the middle row in black jacket gentlemen, please?

[Unknown Analyst]

Sekiguchi from Kate Watch. So 30 million subscribers achieved, which you projected. So yesterday, mobile market promotion plan was released including a price revision and also, so this plan covers broadly. And do you think the competition will be promoted or 5G beyond 5G will be boost. So what is your thought on that?

[Junichi Miyakawa, executive]

So let me answer one by one. So of course, extreme lower price sales or resale to be suppressed. So from that perspective, I think the new rule is I would say, fairly appropriate, but 5G [indiscernible] of 5G is really good. And now AI has advanced. So in order to improve liquidity I feel that it should be a little bit more aggressive. Can say, which is which, but I think the new rule is, I would say, almost appropriate.

[Unknown Analyst]

Another question regarding Rakuten Mobile -- relationship with Rakuten Mobile. I think your proposal, your thoughts on supporting them or helping them I just felt like to boost competition in this market. And I would like to hear about your thoughts on this market.

[Junichi Miyakawa, executive]

This is not a so-called love call to Rakuten. So it would have been much easier if they had not joined this competition. So because to us, they are very strong in terms of competition. So this time starting with entities sort of selfishness all the other telecommunications companies, including us, been discussing and Mr. Mikitani also make comments and then give opinions. I respect him as a business leader.

So I don't want them to be gone so I also watch the fluctuating number on their end it would take some time to make it stable. So in the meantime, I just saw that we could have some discussions. And it's not -- so because I said that at the beginning of my answer, so you may have felt that it was a very sweet message to Rakuten, but it's not like that.

[Operator]

Any other question

[Unknown Analyst]

Sigma from K business. I have 2 questions. First, about the net income from 72% or something which is high, but the RV as you said a conservative goal. So looking back, any reason why you think you are enjoying high progress rate? And is there any possibility to revise your outlook upward?

[Unknown Executive]

For this fiscal term quarter, when we set out the target, we were not sure how or where we would land.

Last year, there were a lot of things, a lot of onetime things like extraordinary loss or legal issues, but we were able to conquer or overcome those challenges last year. So when we started this fiscal year, we were very, very careful about how we estimate performance. Maybe I managed our expenses too much.

But looking at the first half of the year, the number is better than we anticipated, but we cannot be complacent for the rest of the year, maybe we have to sell more to be more aggressive, even though we may have to spend some marketing costs. We are looking at a little bit of leeway at the moment, but we will figure out whether we should take advantage of the moment to become more aggressive or not. So we try to be as flexible as possible. Or maybe we might revise outlook upwards.

[Operator]

Next question.

[Unknown Analyst]

Maybe you talked about this before, GenAI and JPY 350 billion or something you mentioned. And TG announced the customized GenAI and open AI also announced update of the ChatGPT. It's going to be more challenging and challenge to compete in the global market in terms of GenAI.

So from a soft perspective or to view, how are you going to compete?

[Unknown Executive]

JPY 350 billion parameter. Some people may say it's big, but I don't think it's too big. It's like a GPT 3.5 level. If you want to make it to GPT 4, it's a billion perimeter. And recent TTTs parameter, I think, is much bigger even though they have not disclosed. And whether SoftBank entrance in such a fierce competitive market? Well, I don't think so, but if we can, in the U.S., in China, ChatCPT for equivalent technology are there. And if you don't have in Japan, and we -- if you want to use engine as good attached ChatGPT for level, you have to rely on overseas market.

And if we couldn't make it happen, I think we should try hard to have a homegrown Japanese LLM, and if SoftBank can do that, we would love to do that in Japan.

10 billion parameter come to a lot of stuff. For example, we have GenAI [indiscernible] they can do a lot of stuff. But it's just a tool. GenAI as a tool, GenAI as intelligence level of GPT [indiscernible] 56 GPT for intelligence, if we should have one in, I think we should have one. .

[indiscernible] has the unique TG-culture commercial practices and maybe you may want to have a GPT who can understand Buddhist philosophy or ancient document. And I don't think foreign players are looking at those unique aspects of countries like Japan. So if I don't know if it's GPT-3 level or 4 level or 5 level, maybe LLM with hundreds billions of parameters.

If we can make it, if we have resources, we have talent to the extent we can do in terms of resources and talent, SoftBank, I think should be one of the players try to tackle the challenge.

Some big companies like Toyota, Mitsubishi, if those big companies with plenty of resources, if they want to do it, that's great. but I don't see many companies are currently trying to take on the challenge, we are open to take on that challenge. That's the current status.

[Operator]

Due to the time constraints, we would like to take questions from the Zoom press. [Operator Instructions]. Bloomberg News, Hyuga-san. Please mute and ask your question, please.

[Unknown Analyst]

This is Hyuga from Bloomberg. About IPO of PayPay, it's my question. Last time when I asked the question, you said that it has to be profitable to make an IPO. But in today's presentation, the consolidated EBITDA made profitable 2 consecutive quarters. So what's the situation now regarding the IPO of PayPay?

[Unknown Executive]

My answer would be the same. Yes, it is true that we are aiming for ITO, I am actually pushing them to achieve this from the parent company perspective without making IPO or not.

As for SoftBank financial business was something that we were not strong at. But now how well and how deep we should focus on governance then in order to make IPO, governance has to be salary made. So to prepare for -- towards IPO, it has a different advantage. So we would like to continue aiming for IPO.

So to me, IPO does not have much weight or importance of managing this because this business has been well matured. But considering the excellent employees of PayPay Corporation, that would be one option. Also, as for corporate value, and this could be a very ideal and a strong option. So we would like to focus on targeting and aiming at IPO.

[Unknown Analyst]

Okay, related to the first question. So you say that you are not in a hurry to do so, and it could be one of the options. So do you think IPO in Japan will be the most appropriate or overseas could be one option? What's your thought on that?

[Unknown Executive]

Well, generally speaking, we need to select the best way or location to make IPO. So we are providing advice in a general way. So the higher share price, the better. So overseas could be, yes, one option.

[Operator]

Next question from Zoom. Kikuchi-san from SMBC Nikko Securities. Please mute and speak, please? .

[Unknown Analyst]

Kikuchi from SMBC Nikko Securities. From a share value perspective, I have a question. You mentioned that a company focuses on net income, which is great. So my question is related to that comment. Compared to NTT and KDDI, our KPI like EBITDA or PER is higher because of the high dividend, I believe. And you keep saying that you remain the dividend level, which we appreciate, however net income as a stand-alone company is lower level than the capacity that you can pay dividend.

So net income as a stand-alone company as opposed to consolidate the company. We are wondering if you can still keep the dividend. Net income as a stand-alone company to turn around the net income level. So that you can pay the dividend. When do you think it's possible?

And once we see that you are going towards that timing, we should feel reassured. So again, consolidated income might be good now, but unconsolidated income is not as good as we hope. And if it's challenging, you issued a bond type last year, if you keep issuing every year, your shareholders' own equity is going to be rich and we are happy. So how -- what's your feel after issuing bond type in [indiscernible] Share. Do you think you can utilize that to make your shareholder equity much better or stronger?

[Unknown Executive]

I think I should ask your to answer to your question, but let me just say this. The outlook for a few years in terms of net income, of course, we have planned. But moment we are not ready to show our Pacific plan. It's early, too early. With regards to bond type last year, the first round was good, and we are looking at potential Series B, Series C, but my job is to make sure that the capital we raised from that class share is maximized and leveraged to help SoftBank grow much bigger than people expect.

And then the next round should have come. Of course, ICO to next run should be shorter and shorter. But nonetheless, our focus right now is to make sure that the first round is as successful as we planned. Mr. Fujihara please [indiscernible] answer your question.

[Kazuhiko Fujihara, executive]

Of course, unconsolidated the balance sheet and that we are looking at to come up with a dividend plan. Based upon the income from parent company, we paid a dividend in the past. So income from subsidies are used for dividend payment that could have a negative impact to the balance sheet. So shareholders equity should be solid enough and stand-alone company and for new businesses, some times we posted write-off and write-down.

So we [indiscernible] operating income as well as net income to manage a sheet. So that you feel assured with our running business. When it comes to bond type tier, we want to use that capital for our growth. That's primary usage of the money. And we want to structure our balance sheet to utilize it as sort of insurance. So we have multiple layers to build our shareholders' capital as solid and strong as we hope.

[Operator]

We would like to take questions from one more person to conclude Q&A session.

[Unknown Analyst]

Masno-san from Nomura Securities.

[Unknown Analyst]

[indiscernible] . I asked similar questions last time, the generative infrastructure, which .

I have 2 questions around that. One is about building infrastructure and the second, how would you utilize this as service. So how to build the infrastructure so I believe that your use is 100 to build. So you would be using the same chips or the different ones, how would you enhance the infrastructure AI. So you mentioned that 50-megawatt and 300-megawatt would be the second and third phase. How would how you plan to extend that? And with subsidy government subsidy and how would you provide externally? And also how would you provide resource externally.

[Unknown Executive]

So what we did this year is a 102 part. And next year, we are starting. And in two years, we do have plans for that. And next year, the first half of the next year, the number of ports we are still considering the budget. So in the first half, a H100 and the second half of [indiscernible] grasshopper is in our plan. And in 2 years with grasshopper because it's a distributed type. So the grasshopper copper will be located near the base stations. That is our plan. So this plan will be also at the time of General Shareholders' Meeting, we will be able to announce and accordingly.

And 2026, Hokaido data center was to be relocated. So H100 part for 1 part is planned in the first one. So even for -- but already, the computing power is not sufficient. So how would be operating the Hokaido data center is we are also considering.

As for next year, for next year, our data center is not in so we have to utilize the external ones. And the data center in Ecoma and Osaka will be ready and next year onwards. So how much we would cost? And what's the plan?

Specifically are not something that we can disclose at this moment. So this concludes my answer.

[Unknown Analyst]

So about solution. Now this is the infrastructure. So how would you utilize it? The already announced. So you are the biggest challenger in Japan now. But whether the performance would be something that you expect or not. When do you expect to see the outcome of this performance? And how would you expect the revenue of external sales. And by doing so, how much cost reduction is expected? What is the vision on this initiative? If you could touch upon that to be appreciated.

[Unknown Executive]

So right now, calculating computing at two parts. The first parameter is to JPY 20 billion, and it's been a month. So it's been operating okay. And right now, JPY 350 billion parameter and we are quite confident on that. I have reason to support that. So right now -- So JPY 3500 billion parameter is our staff and this is the team that we are confident on and has experience so I think it's possible but the next challenge is 1 trillion parameter. We would like to challenge but this is something we have never done. So can't really say that we are completely confident on that but we would like to challenge on that.

As for revenue model, so right now, OpenAI, Google bird, what they are doing -- so first, monthly fee, it can be deployed for a consumer target. This is not what we are thinking about rather B2B solutions is what we are designing right now.

So first, internally, we would like to prove and maybe over a year or so. So first, internally we would like to utilize generative AI to operate our internal task as much as possible. Starting at call center or HR. So we are using it but to make it completely automated what is needed is something that we are working on. So once we do it internally and we would like to monetize through consulting.

So JPY 250 billion or JPY 500 billion enterprise revenue is something that you consider. This is not included, but at end, maybe this could replace the enterprise revenue.

[Operator]

Thank you very much. That concludes our Q&A session. Thank you very much for joining for the earning results announcement for the 6-months ended September 2023. This announcement will be broadcasted on demand on our website.

Again, thank you very much for spending time with us. For our announcement of our earning results for the 6-months.