SoftBank Group Corp
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SoftBank Group Corp
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[Foreign Language] Thank you very much for waiting, ladies and gentlemen. Now we would like to start the SoftBank Group Corp. Earnings Results Announcement for the Three-Month Period Ended June 30, 2018.
First of all, I would like to introduce today's participants. On the front row from right, we have Masayoshi Son, Chairman and CEO; Ken Miyauchi, Director; Yoshimitsu Goto, Senior Executive Corporate Officer and CFO. At the back row from right, Kazuko Kimiwada, Executive Corporate Officer and Head of Accounting Unit; Kazuhiko Fujihara, Senior Executive Corporate Officer and Head of Business Unit and CFO of SoftBank Corp.
This meeting is live broadcast over the Internet and can be heard by telephone.
Now I would like to invite Mr. Son, Chairman and CEO, to present to you the earnings results and business overview. Mr. Son, please.
My name is Son, thank you very much for coming today. Recently, I am thinking that if you look the things in short-term period, which is not good things. I believe whenever you think something, you need to see in mid- to long-term period. That's something that, I believe, is important. SoftBank Group for example, well, I will touch on this later in the slide as well, but we have been looking at the industry where we are competing has been dramatically changing and the industry makes a lot of changes one after another. And because this environment changes quickly and dramatically, we always need to look ahead, 1 step or 2 steps ahead, so that we will be able to be prepared for the next battlefield, in the way changing our main steps or the main portions or the main domains [indiscernible] along with this change. And that's why I believe it is very important for us to set up the SoftBank Vision Fund in very appropriate time frame. And also I believe it was a very great one step or first step for us to make such a change.
The content of my presentation today has been more towards -- or showing that how much impact or influence that we've been having from the SoftBank Vision Fund to this earnings results. So including those that I would like to share, what we are trying to do with Vision Fund and what we are aiming for with SoftBank Vision Fund, that's something that I would like to explain to you today.
Now I would like to go into the presentation. Here in the past 4, 5 years, singularity, this word has been something that I've been keep saying. Singularity meaning that the time or the point where computing power exceeds human's brain. So this is a cross point, and actually this cross point will be coming in this century. In these 30 years, I believe most of the industry or most of the field in any industry that requires intelligence productivity, we believe that computing power will be exceeding human brains, and that's the phenomenon that we will be seeing almost everyday basis. And we are preparing for when such a singularity point comes that we would like to make sure that we are fully prepared for that.
In more specific agenda in technology or engineering, I believe singularity is something very much equals to AI, artificial intelligence. AI, I will say, this is the biggest revolution in human history. So I will say human revolution equals to AI, and we are now facing such a big revolution. And I believe AI will change or will redefine all the industries, that's how I interpret this era. So I will say winners in AI will be winners in the future.
So based on such concept, how should we be prepared from the strategy's point of view in such an era? And that would be, I will say, Cluster of No. 1 AI Strategy. Revolution of AI will redefine all the industry in dramatical speed. Then that's not something that you can understand with your existing knowledge or traditional wisdom, but with your freshmen or newcomers, I believe that this will be a big band, this is a big change and big transformation. So when you have such a big band, you cannot address this change with traditional way of business anymore. That's why we believe it is very important that we execute such a Cluster of No. 1 AI Strategy in SoftBank Group. That is why we established SoftBank Vision Fund.
Whenever we say we set up SoftBank Vision Fund or whenever we say we have this SoftBank 2.0 and we make our investment in many companies, then that the people will say SoftBank just transformed itself into just a simple investment company. But actually, we are not -- we don't feel that we are the simple investment company. Actually, we are -- we have been focusing on Information Revolution from the very first day of our foundation of the business. And as a method for that, that we own 20% to 30% of the stake in best companies with best entrepreneurs, with best business model, with best technology and we create such cluster with them so that we will be able to realize AI revolution. So that would be our strategy for the group.
There, we will see synergies between portfolio companies and support and cooperate each other, so that we can proceed the new strategy together with those people. I don't believe this is not that easy just one company can accomplish such strategy. That is why I believe Cluster of No. 1 AI Strategy is very important.
Now let me go into some detailed numbers. Net sales, adjusted EBITDA, EBIT, net income, as you see the numbers here, these are our results. And also I would like to touch some details one by one.
Net sales breakdown as you see on this page. SoftBank 2.0 and Cluster of No. 1 Strategies, that's why we come up with the SoftBank Vision Fund idea. But SoftBank Vision Fund is not reflected to this net sales at all. Also it's not reflected to the adjusted EBITDA. Any result from SoftBank Vision Fund will be reflected to EBIT, which will be shown in the next page. As you see, there is no such Softbank Vision Fund in both net sales and adjusted EBITDA from the accounting point of view. So again, Vision Fund result is reflected only on EBIT and net income.
So the first quarter of last year, FY '17 was the year when the results started reflected on and you can see the numbers here. Mobile or Domestic Telecom business, Yahoo Japan, Sprint, we have been doing well and not a big difference since last year. But the biggest difference in terms of year-to-year comparison is SV Fund, SoftBank Vision Fund, in terms of EBIT. And also we made Arm China as a joint venture. So the pink part was onetime EBIT as opposed to recurring event. But if you look at the blue part, that is going forward every year. SoftBank Vision Fund result will be shown like this, and we expect the value will be increasing steadily going forward.
With regards to financial status, interest-bearing debt, we make sure that it won't be excessively huge against the cash flow. To how much we should have in terms of comparing debt against the cash flow and how much debt we can sustain against assets, we are looking at them from a very balanced perspective. And again, let me go into each and respective business domain.
SoftBank business. Last year, the previous accounting standard was applied. And this year onward, new standard is applied. So in terms of business segment, if you want to compare business segment, better to compare business segments with a new accounting standard. So that's why this Domestic Telco EBIT is shown in terms of new standards and EBIT was up by 10%. And cash flow, likewise, we have seen steady increase compared to last year. And smartphones net additions, again, steady growth has been seen.
We've got SoftBank Mobile brand, Y!mobile brand and LINE MOBILE. We have 3 brands in our business, and it's not lopsided to any brand, so all 3 brands have been contributing to our result. And broadband subscribers, also we have seen steady growth.
And Yahoo Japan and SoftBank Mobile established a payment platform, so Paytm, which is one of SoftBank Vision Fund's portfolio companies. We got cooperation from Paytm for technology and we established PayPay. In China, for example, it's almost cashless when it comes to payment, especially young people in China don't carry cash anymore, rather they use mobile for payment. That's true for India as well. In Japan, the same trend will come sooner or later. So that's why we started this initiative to get prepared for such a future.
And SoftBank Corporation is planned to be listed in Tokyo Stock Exchange, and we are working on preparation. Aside from that, Yahoo Japan and SoftBank KK or SoftBank Corporation's collaboration has been enhanced and we purchased Yahoo Japan's stock so that we can enhance collaboration between Yahoo Japan and SoftBank Corporation.
On top of that, in terms of collaboration with SoftBank Vision Fund, not only revenue from Domestic Telecom business or just a traditional carrier business, but we are looking at beyond carriers. So rather than carrier business -- or on top of carrier business, we want to build revenue sources so that we can get prepared for the future through further or enhanced collaboration with the SoftBank Vision Fund's portfolio companies. For example, WeWork Japan. We have already opened 8 offices, 8 WeWork Japan offices in Japan, and we have seen quick, speedy growth of memberships. One WeWork member brings us 10x more revenue from 1 mobile user. So that means we have 5,200 memberships, which means it's equivalent to revenue that we got from 52,000 mobile users. So we can expect recurring revenue from those members.
And we have established a joint venture with DiDi. And we're going to launch trial operations in autumn with Boston Dynamics, which is most advanced robotics company, we believe.
Construction companies like Takenaka and Fujita, we agreed to use the robots to monitor construction sites.
And we don't have enough time to share with you our exciting initiatives that we are working on. And Vision Fund portfolio companies or SoftBank Group's invested companies, even before SoftBank Vision Fund was established, we have been deepening collaboration with other companies. And SoftBank Vision Fund will have more companies in the portfolio. We want to have global unicorn companies in our group. Globally, most advanced unicorn companies will join us as our family and those companies will come to Japan with new technology, new business model and with service offerings so that we can redefine all industries.
I think you already know, I don't know how much you know, though, that at SoftBank Mobile, the profit or EBIT margin against revenue is the EBITDA margin against revenue -- or free cash flow against revenue SoftBank Mobile is the #1 because productivity per employee is much higher than others even though our business is in Japan. So revenue from one employee, productivity per employee, really good.
And also we want to even improve more the technology -- excuse me, productivity. How? Well, we want to go through RPA, or robotic process automation, so that we can improve productivity further in the company. And also even further that we would like to make using AIs. So we already have several hundreds of AI project in-house at the same time. Most likely, even you compare with the other companies in global market, having such 2,000 RPA project in telecom industry as of today is only us. I will say even outside of telecom industry, I assume not many companies or even 0 of the companies are proceeding such a lot of numbers of project at the same time. So with this project, we believe things like things requires 2,000 hours of the work can be reduced to 2 hours. That kind of achievement has been happening one after another. So we've been working towards reducing the working hours with more efficiency. But not only reducing working times, but that's going to give -- make us lose the competitions in the world. So we rather like to improve and enhance productivity of our employees scientifically so that we can enhance our internal processes or internal work by utilizing such RPA project. So continuously, we will be working on enhancement and efficiency because telecom industry can be very much a matured business model, but we rather like to evolve our business and expand our business domain and enhance our profitabilities, EBITDA margins and everything by having such projects going forward.
Next is Sprint. Of course, you know that we have suffered a lot in Sprint, and of course, people may say that we are still having suffered or we're still having big negative numbers. You may have such an idea and image. However, in reality, it has been improved a lot. For example, the number of customers in postpaid, those are the major part of our revenue in Sprint, and this number has turned around from declining trend to increasing trend and even in a slightly basis, but still making a steady increase. On top of that, EBITDA is also making a steady progress in the past 6 years, making increase thanks to the various types of efforts, including cost reductions and everything, that since the Sprint joined SoftBank Group they've been making increase in adjusted EBITDA, same as operating income now that we've been seeing steady positive figures here.
In the past 3 months, JPY 100 billion, level of the operating income, it's something that very much stable from the telecom industry's point of view.
But we are not satisfied yet, of course. Whenever -- when we decide to come into the U.S. market and from the very beginning of that process because the situation was that the 2 big players were competing in the market, but actually #3 and #4 was not being able to compete against those 2. But becoming the 3 players in the market, then that we'll be able to make more competitiveness in the market and enhance the network. And also we would like to make our 5G network most strong and a very effective network. And for that, that we believe it is important we have merger in between Sprint and T-Mobile U.S. and that we are working very hard to make that progress.
Next is Yahoo Japan. Management has been refreshed and they have very much motivated people. And actually, sometimes Yahoo! was a bit conservative in a way. But with these refreshments that they have again reminded themselves that they need aggressive move so that they start the advanced investment. And some of those stones, throwing stones, has been making some fruit and that advertisement revenue is making good progress. Therefore, premium member ID has been increasing steadily. Shopping transaction value is also increasing. I believe the incremental momentum is, I believe, one of the largest in the e-commerce industry. Of course, we are still -- this is just the beginning and we do need to make it more big move on this.
And next is -- which is about one big acquisition transaction that we have made 2 years ago. Here the Arm-based chips shipped has been increasing very much steadily. By year 2030, Arm-based chips shipped will exceed 1 trillion -- could exceed 1 trillion units in cumulative figures.
Recently, in one year, new chip shipped are actually the product with 35% more performance. So 30% more performance density. So originally, the chip was for smartphones, IoTs. But this is the first processors designed for laptop and we believe that the Arm's business domains will be expanding and I am very much expecting on those.
The original or traditional -- on top of the original chip designs, but actually there are new business unit established in -- actually, it's completely from scratch. Traditional or business unit was [ IPG ]. So this group works to enhance the capabilities of designs of IP. But on top of that, there is a new business unit created which was not touched at all at the time of announcement of acquisition and it was very much internal secret. And that new business unit is [ ISG ], this is the group for the service.
So what kind of service are we talking about here is that actually Arm ships the most -- biggest number of chip in the world and this chip has been mounted to various types of devices. But before, Arm only shipped the Arm-designed chip. However, this time, on top of that, data will be collected from those chip that shipped from Arm and this data can be utilized for various types of analysis so that we can have value added. And for that, recently, we have announced the acquisition of the Treasure Data, so which this Treasure Data in just integrate, store, prepare, discover, so that we can manage data. And by managing service, our companies or partners will be able to utilize such data. For example, analyzing those data and they can explore how can they well use such analyzed data.
The process will be implemented with Treasure Data. We've got embed for device management and we've got stream for connectivity management. So we integrated those platforms, which is called Arm Pelion, and this integrated platform is that -- is something that we want to use for platform as a service. Imagine that 1 trillion chips will be functioning each other as platform and how much data can you collect from that huge platform.
Traditionally, the data in PC, which is managed by people, and data in smartphone, which is managed by human. Going forward, without human invention, chips in IoT devices will collect the data autonomously without human intervention and analyze the data and utilize the data without human intervention. And if such performance is done separately, it's not good from productivity perspective, efficiency perspective.
So how can you create connectivity network? And how can you ensure security? Looking at hackers, recently, they are not hacking through PC or smartphone. Rather, they are using WiFi routers and air conditioning or security cameras. They are using those devices for hacking purposes. In the past, those devices are not managed well from a security perspective. But by Arm, having data platform, you can protect security and you can collect and analyze and maximize the data from those chips. So on that platform, that data can be provided in a very secured manner.
And how much added value we can provide. On top of that, traditionally, again, chips or chips, just the chips. But going forward, those chips will be AI-powered chips. Going forward, the Arm that is going to ship -- the Arm chip that is going to be shipped will be artificially intelligent and those chips will be distributed everywhere. So chips or artificially intelligent chips will learn autonomously and will be more intelligent autonomously. Then the whole world will evolve without human intervention. That's something that Arm is working on as Arm Pelion, and that's something that Arm works on to build that kind of platform.
So in the past, edge devices were not connected, and they were just independent. But going forward, edge devices will be connected in network and those edge devices will be artificially intelligent. Then those devices, edge devices, will autonomously learn by themselves. So the whole world, whole globe will be like living creature. So the globe, as a whole, is network and living creature and learn autonomously. So the world, the globe will be acting like organic creature. And 90% of the chips that support will be shipped by Arm and that will happen only in 10 years or so. And chips that are going to be shipped will collect and analyze the data and how good it will be.
For example, energy, power generation at home or factories and schools and companies and offices. How much energy is consumed at what time and how much? You can predict that by looking at the weather and days of a week, like in 2 hours, in 1 week, in 1 month. You predict weather and predict demand for power consumption. So the sensors will look at how dry the land is, how deep river runs and how fast water on the river runs. So that will be analyzed with the sensors so that the most optimal power will be generated and sold and produced. Then efficiency of power generation should be much better because you can prevent power outage and you can create clean, safe energy and manage that energy.
That can happen because independent edge devices are artificially intelligent. So each edge device is artificially intelligent and that will enable most optimal productivity and efficiency. So demands and events and supplies will be calculated so that productivity will be improved. In other words, by having edge devices artificially intelligent, we can create the whole world more productive and more efficient. And narrowband IoT network and 5G network will be, of course, essential and critical. And telecom is our core business and telecom infrastructure will be obviously maximized and utilized. And Arm should play a key role. NVIDIA which we invested in recent year will be also critical because we would need them for cloud AI and edge AI.
When SoftBank invested in NVIDIA, why? When SoftBank acquired Arm, why? Right after the announcement of that investment and acquisition, people would ask why. And they didn't have any idea why SoftBank did this. And I remember I said something like we looked at 50 steps away -- 50 steps ahead. Of course, even before we made such acquisition, we had such concept and ideas, but we intentionally didn't disclose or explain detail about 50 steps ahead because of design concept, we needed a time for discussion.
After we acquired Arm, we started discussing with Arm management and Arm engineers and the vision that I had before the acquisition and the vision that Arm management and engineers had, we realized were the same. So that's why the project that I just mentioned earlier can be implemented now.
So the short-term outlook for Arm actually that we are enhancing the number of human resources and engineer, proceeding [ ISG ] on top of [ IPG ]. And also edge AI has been developed to produce the deliverables.
So the big vision, big strategy-wise, in summary, I will say AI is everything. Singularity equals to AI.
And strategy to be prepared for that, we established SoftBank Vision Fund. In the past 1 year, we have made investment into these companies on this slide. Just a year ago, there was nothing. After we set up SoftBank Vision Fund and we were able to welcome these unicorns into our group. Again, the Cluster of No. 1 Strategy. So there are company from construction, company from medicals, real estate, e-commerce, telecom, map, robotics, so a variety of the companies, varieties of the industry. Looks like there are no consistency in investing in these companies. Somehow that you may say I just picked the one and made the investment without any consistency. But actually, there is a consistency there, which is AI.
So we are redefining -- those are the companies are redefining using AI. So that's the main concept, main consistencies among -- for this investment.
For example, if you look at WeWork, actually we were adding more members in WeWork. Actually 220,000 memberships available. With 1 member, you'd be able to have 10x of the revenue of subscriber in mobile business. So 200,000 membership meaning that we have 2.2 million mobile subscriber, equivalent profit can be continuously given or provided to us. And this company, in the beginning, was only targeting for start-up companies for their members or membership, but recently they are also encouraging enterprise companies, enterprise customers into their membership. So they also realized that WeWork is not only office leasing company or office desk leasing business. What is WeWork? I would say they provide the working network. So I will say that WeWork equals to working network. And now that WeWork is providing this working network to enterprise customers so that the start-up companies and the enterprise companies can exchange ideas and opinions and explore more opportunities ahead and stimulating each other.
So I would like to show you a video.
[Presentation]
I have been visiting WeWork offices several times and also our employees are using WeWork office and also actually we are relocating office to WeWork, SoftBank head office sometime in future. We are thinking the whole office of SoftBank Group to relocate to WeWork, that's a discussion that's going on right now. By changing our workplace into WeWork, we can see more efficiency in our work or operations. So I said earlier that we would like to robotize process of work.
On top of what we do, as a working group with AI, we will be able to enhance the efficiency and also make exciting and dynamic and productivities will be high by having such an opportunity in place in working in such WeWork office. So space has been optimized. And also by predicting the demands, optimizing construction, service, space and everything and we are using AI not only predicting demands, but also encourage the communications or the productivity enhancement through the exchange of opinion.
Amazon AI camera, by installing the several thousands of camera in convenience store, AI will learn the people's flow and the people's movements and behaviors and creating stores to be -- with the optimization of the stores. Likewise, WeWork, with the large amount of the AI cameras and everything that WeWork will be analyzing how people can be communicating, also recommend what to buy, but we will recommend the communications with others. So if you communicate with these kind of people, you'll be able to come up with better idea in such a product. Or regarding the patent that maybe you need to speak to this kind of people. That kind of consultations for the working community can be provided.
One another example is hotel chain. Completely new types of hotel is born. This is a next-generation type of hotel management, OYO. This hotel, as you can see, just 3 years ago, the number of rooms was 1,000 and that has grown to 101,000 in just about 2 years, so 100,000. 100,000. Or in India, the biggest hotel chain in the past was the biggest in India and they have 15,000 rooms. And OYO, in just 2 years, grew the number of rooms to 100,000. By the end of the year, I would say 150,000 more rooms or maybe 200,000 rooms, which will be 10x more than Taj group's rooms will be OYO's. So it's completely a new type of hotel and they are growing so fast.
It started in China as well and it's been less than 12 months since the business started in China. If you look at monthly number, 25,000 rooms were created every month. And also their business and management is being more efficient by AI. The world's biggest hotel chain in the world, which is Marriott, and how many net room ads were created by Marriott monthly? It's 8,000. Hilton, the second biggest, 7,000. And Intercontinental, the third biggest hotel chain in the world, they grew number of hotels in the last 3 months, 2,000.
And OYO, by the way, is not a travel agent. And OYO manages hotel comprehensively with OYO's management, with OYO's IT, the OYO's booking technology and OYO's quality control method. It's like a franchise. So again, OYO grows 10x faster than the world's biggest hotel chain, Marriott. Why they can do that? Well, with OYO, the occupancy grew from 30% to 78% with OYO. So from hotels owner's perspective, occupancy rate grew dramatically with OYO. And OYO helps them to get people and increase the occupancy of the rooms. So in return for that, the profit will be shared with OYO and hotel owners. And what they do is to create heat map with AI for demand prediction. And with AI, they decide pricing. So per day, 43 million micro-optimization takes place per day by looking at the weather, looking at day or week, looking at what kind of campaign is ongoing. Because depending on that kind of situation, demand-and-supply balance is different. So dynamic pricing takes place. 43 million micro-optimization per day. Without AI, you can't do such micro-optimization. I believe this is the most advanced hotel management, and Vision Fund is the major shareholder of OYO.
And in China, long-haul truck drivers or truck owners have 1 or 2 trucks per family. So long-haul driving truck owners, 90% of them run their businesses independently and with freelance, so they drive their own trucks for their business. And 3 million such driver is on this Full Truck Alliance platform. So most of the truck drivers are on the Full Truck Alliance platform. With that platform, demand is predicted with AI and where a parcel goes from where to where and how many trucks are available to which direction and looking at the traffic, looking at the [ credit ], looking at the weather, those are the inputs for AI for analysis so that trucks and demand are matched most optimized way.
Traditionally, you may have used paper for such management and you can't do that with such a huge volume. In Japan, truck dispatchers are struggling to have drivers because those drivers can't work too much -- too many hours. So there is a mismatch between the demand and supply in Japan.
And in China, they're far advanced because they are digitalized and they have AI-ed for such matching capability. So artificially intelligent-based matching takes place in China and China is most advanced. And again, SoftBank Vision Fund is the major shareholder of Full Truck Alliance that has this AI-based matching technology.
And used car market in Europe. There are over 50,000 used car dealers in Europe on AUTO1.com's platform. They started from 0 and now they have 52,000 dealers on their business. And again, they are using AI for analysis and matching so that they can forecast visitor value, they can recognize images, they can control supply and demand and they can prioritize appointments. And also this platform does dynamic pricing.
And now real estate. Compass is a group of real estate agents and Compass again uses AI for demand prediction and optimization and for matching.
And insurance. In India, PolicyBazaar has been growing with AI. For example, analyzing car body chassis. Traditionally, it took 3 days for inspection, but now they can do such inspection in only 3 hours by analyzing images with AI. So PolicyBazaar with AI has improved efficiency of insurance business.
So traditional used car business, traditional insurance business, traditional real estate business, traditional offices and hotel businesses, they have been industries for a long time very traditional, very common industries. But with AI, young entrepreneurs use AI as a tool to completely redefine industries.
And let me show you a video here.
[Presentation]
[Foreign Language] has the one device with 10 to 20 camera at the same time and those cameras has a different distance in each. Some of them are 20 meters, 200 meters, 2 meters of focus. So the focus distance is different by each. And together with those cameras, they have all together in one device so that automatically with AI, with designed chip -- dedicated designed chip that will give you -- they analyze the image, process those and communicate. So this company has such a technology. Again, Vision Fund is a leading investor for this company.
And with this technology, think about that if these cameras are there in WeWork office, then we have members, which members who are speaking to who with which desk and that can be created in graph on Facebook, for example. And also with communication by members, there will be a variety of recommendation. And Facebook is the on-net Internet, but here in WeWork, it's physically that such graph is created or you can use these kind of cameras, but lights as a tool that's becoming available one after another in SoftBank Vision Fund.
Rideshare, this is one of the most important segments of ours. As you see in the previous pages, demand forecast and also dispatching and how can we effectively use those information that can be led to dynamic pricing, same as OYO.
For example, here you see this is the real demand prediction in China, 15 minutes later, you see the negative 1 -- 10, a negative 12 means that in -- 15 minutes later, there are 12 cars shortfall, which will be needed. So that's predicted. And the green part, so 3 is excess -- or 10 cars excess. So those excess cars, if they can reach to those red spot in 15 minutes, 3 cars or 5 cars, then we can meet customers demand without we receive the request. So car can be ready, so it's like a prediction dispatching. So traditional radio call only happens after you receive the call from customers in dispatch, but this is predicting the 15 minutes latest demand, how much shortfall, how much excess of cars are there. And if you go to those red points, then you'll be able to receive more charge or more fees. Green points are the less charge. So that driver's point of view, better to go to those red areas where the customer needs you and you can catch customer more quickly and also you'll be able to have higher revenue per trip. That's why -- that motivates drivers to go to those red spots. And that's automatically calculating in AI, so weathers, events, days, time, traffic, volumes. So using the variety of the information, AI will give you the automatic prediction. This cannot be happened by the human resource operations center in traditional way. You'll never be able to do that. So this is the optimization that only AI can do. So these kinds of things are the power and the beauty of AI.
On top of that, sometime in the near future, AI will provide the traffic transportations without any accidents because human drives -- that's why that we see some troubles or accidents. So with AI that we will be able to build the society without any trouble. So this is the one example that the Cruise car is driving autonomously. So you see a lot of people crossing across road in Chinatown, San Francisco and this is a real experimentals. And you see here, this case is construction ahead and you see the orange vest-wearing guy is just telling you with his hands to come by or go this way. So the AI is deciding based on such hand signs. And here, this example is the case where the traffic signal is in trouble, so that the cars are coming from the right to left and that you need to go through those traffics.
So traditionally, human decide based on the situation. But even with these numbers of people, number of cars with traffic lights out of service and if you -- the driver is 80-year-old, 90-year-old, then that you may misstep gas to break, so there are lots of tragic accidents happen here and there. In such circumstance, if AI can provide autonomous driving then we believe we will be able to create the society without any traffic accident then that's something coming soon in the future.
So now that I am going to the summary. For the growth strategy of SoftBank since its foundation, we've been transforming ourselves along with the change of environment. Our core business, so people ask us what is SoftBank's core business? Originally, we do the wholesale of PC and also publishing service or publishing business for PC users that take -- occupy -- account for about 90% of our revenue. And then many people thought that, that's our core business, but I've been saying that, that's not our core business from the beginning. I have been saying that SoftBank is Information Revolution company. It happens to be the business -- revenue of the business is mainly coming from wholesale and publishing. However, I never thought that this is our core business.
So once with the birth of Internet, we were the very first business or company that shifted our gear to Internet. At the time that the revenue of the Internet was 1%, we have shifted, I have shifted 99% of my time and brain into Internet. I was at 97%. Revenue was only 1% out of total revenue, but 97% of my time and brain has focused and shifted to the new business. Likewise, when broadband comes, we shifted to Yahoo! BB. So we did that.
And now we have at the time -- back then, we predicted that the era of smartphone comes. And right before Steve Jobs announced iPhone, when nobody knows, we have assumed the business of smartphone. So we have decided to acquire Vodafone K.K. There, we completely shifted my time and brain to smartphone.
Same thing is happening here once again. The revenue of SoftBank and profit of SoftBank, AI has not contributed to those areas at all. But now that I am using 97% of my brain and time will be shifted into AI, which is not contributing most of our revenue and profit. And singularity is the word that I have been using these days and also more specifically AI. So utilizing AI and challenging to the various types of field, that's something that we are trying to do.
Vision Fund is that's -- the purpose of the Vision is for that. This might be interesting to you. 20 years ago, 1999, this was a slide used at extraordinary shareholders' meeting in 1999 and the shift from analog technology to analog services. For example, Panasonic and Sony and Sharp and Toshiba, those companies made television and that contributed a lot in terms of profit. But those revenue sources shifted from analog technologies to analog services. Likewise, when it comes to digital, PC hardware and routers, those were main revenue sources, but now it shifted to services like Google and Amazon and Facebook. And likewise, AI technologies will be getting attention first, but then shift will come from technology to services. So for that future, we decided to establish a SoftBank Vision Fund.
To conclude, AI will redefine all industries and AI is -- should be the biggest revolution in human history. And winners in AI will be winners in the future. And we created SoftBank Vision Fund so that we can have a Cluster of No. 1 AI Strategy. So most of the increase in profit comes from Vision Fund, and it begins to show the biggest contribution going forward to our SoftBank Group and that's how we expect Vision Fund. Thank you very much.
Now we'd like to open the floor for questions.
[Operator Instructions] And somebody at A3 section, please.
[ Asatakei ]from [ Nikkei ]. A question around SoftBank Vision Fund portfolio companies. We see trade [ affliction ] between U.S. and China and you have been investing in these businesses in U.S. and China. So that kind of tension between U.S. and China, do you expect some impact from that or not?
Well, in principle, the friction or tension between U.S. and China is something about trade and tariffs and taxes. Of course, we -- I personally don't welcome that. Eventually, U.S. and China and a lot of other countries should trade in a more balanced way and eventually it should happen. In the meantime, the investment we have made should help development of technology in each and every country that we invest in, and luckily SoftBank resides in Japan, which is neutral country. We are based in such a neutral country. So I think that's fortunate for us. Next question, please?
My name is Owada from Nikkei Computer. So this coming Saturday, you will be 61 year old and I would like to hear your succession plan. So Cluster of No. 1 Strategy means that you'd like to expand your business, meaning that your successor will be having more -- needs to put more effort. And are you going to pass the torch in 9 years? What is your thought about the succession?
So I do have a hope that I would like to continuously work as a CEO, but physically speaking, I will be aged, and of course, anybody -- everybody will come to -- life will be coming to end sometime. So that we do need to face that reality and we do need to consider the succession plan within a 10-year time span.
So you've been focusing on AI for today's presentation. So to change the [ word ] in AI, you set up the JPY 100 billion SoftBank Vision Fund, is that going to be enough? Do you need additional investment for AI or some other area?
Well, we may consider for the SoftBank Vision Fund 2, but we don't know yet when and how much size. I hesitate to make any further comment on that.
Next question, please?
Otsubo from Sankei Newspaper. First is about smartphone and you have been encouraging Kawabe-san in Yahoo! to really enhance smartphone business in Japan.
And iPhone -- or due to iPhones, maybe payment by smartphone has not been prevalent as much as other countries. For example, in China, smartphone payment with QR is most popular. Not only in China, but also in India, in Southeast Asia, those countries are utilizing QR code, if you will, for smartphone payment. And why QR code is better? Well, because, from retail shopper's perspective, they don't need much investment. All they have to do is to put the label of QR code. So merchants, there is no limitation with regards to the number of merchants where you can pay with smartphone. So merchants don't have to install expensive devices or tools and pay a lot of operation costs and maintenance costs. Merchants don't have to make such investment or pay costs. So QR codes make it happen. And with QR code, you can quickly expand the network of merchants when it comes to payment by smartphone. So that's why SoftBank Corporation and Yahoo! Japan work together to make that happen and we can do that to have a big network of merchants. And when you expand the network broadband, you took to the street yourself to really help expand the network or expand the penetration of broadband. But I think Kawabe-san and younger management should play such a key role. Me, myself, will take a lead in SoftBank Vision Fund.
Another question, this is about Domestic Telecom business, maybe I should ask Miyauchi-san. KDDI announced to stop 4-year contract commitment or 2-year contract commitment. And how are you going to address that such competitor's move?
My name is Miyauchi, thank you for your question. With regards to [ hear ] contract binding, if you will. KDDI does not only 25th and 26th month, in 24th month you can -- you may terminate your contract. So the term "binding," people often refer to it as a binding, contractual binding, but it's more like just a 4-year plan or 2-year plan, price plan, as opposed to binding. So our intention was to provide affordable plan to users so we are considering to get rid of mandatory requirement for signing up new contract when -- extension of contract when they terminate their current contract.
My name is Oshika from Asahi Newspaper. I have a question to Son-san. So I believe that you've been making a lot of investment in various type of countries in SoftBank Vision Fund, mainly focusing on AI and IoT. In most of the case, China, India, U.S., but actually, you are not making investment in Japan. Don't you see any promising company in Japan?
I believe and I am hoping that there will be lots of promising company one after another in Japan as well. However, for that, Japanese government also need to consider deregulation more proactively, not because somebody tell you to do so, but for the future of Japan. For Japan that I believe government needs to consider deregulations, then new venture companies as a unicorn can start up in Japan and that will be easier or even more better environment for those companies to become a unicorn from Japan. But unfortunately to say this, but I believe there are only a few companies who can be the big size like several hundreds of billions of yen therefore. But I'm not giving up any hope, but whenever we see some promising company then we would like to aggressively see those and support them.
And the Bank of Japan has been deregulating, providing the monetary ease. But it might be tighter going forward, but how -- what is your countermeasure, what is your position?
I don't change my position. I don't believe so. As SoftBank Vision Fund, any -- we already have a setup for the investment, so we would just do whatever we need to do. Anymore question?
Oshima from Asahi newspaper. Maybe related to somebody else's earlier question about Domestic Telecom. Mr. Miyauchi mentioned early that 2-year plan, 4-year plan will be revisited. You are thinking about revisited 2-year, 4-year plan and what made you think about considering revisiting those plans?
True. If you think harder, in 24th month, you have 2 months' time frame where you can decide whether you leave or stay. But after 24th month's end, in 2 weeks or so, it's difficult to divide data in days. But we believe, we improved based upon some feedback. And for 4-year plan, if you look at user behavior, whether it's iPhone or smartphone, they switch every 2 years. So that's probably most appropriate cycle. A little bit longer than 2 year. Most users switch in 2 year or so. And every 2 year, you can have the latest device. And 4-year plan is also planned for users to get new devices with affordable price because of the 50% discount, for example. So mandatory requirement for renewal in the next year is something that we consider removing as condition. But I think most users prefer switching every 2 years or so.
So at least we want to offer different choices so that users can decide and pick whichever choice they want to have. So instead of pushing users to select something particular, we want to provide different choices on the menu. And the more choices they have, the better for them.
So we are very sorry, but due to the time constraint, we would like to end this session after taking questions from 2 more people. And also, please keep your question to 1, please. Thank you.
So you mentioned about Information Revolution equals to AI and also winners in AI is winners in the future. So you are very much focusing on AI? So can you explain us -- my name is Tanaka from Nikkei Computer. But can you explore more about the possibilities of AI? Or what is your thoughts on the AI?
So I've been talking about AI for about one hour, so that's about it that I can say about AI. But -- so we need to see the right timing to hit the ball. And the one thing I am good at, if I can say, is that I know the right timing to hit the ball. If you miss the time, then you cannot hit the ball. If you are too fast, then you cannot hit the ball either. So right before that the ball comes, we make -- adjust and whenever it's appropriate, we will swing the bat. So right before smartphone, we prepared for that. Right before Internet dawned, we prepared for that. This time, right before AI full-fledged development, we prepared for that and we are exactly preparing for this. So AI is definitely comes in a dramatic speed and we are putting our full effort to hit this ball. Thank you.
The last question, please?
Negishi from Wall Street Journal. You talked about OYO and the number of room has been growing dramatically, but I assume return per room is very small and maybe you would accept some loss. So from investor's perspective, when can you expect positive return per room? And with regards to Arm, so if too much data is concentrated in one place like Arm, for example, there might be some security concerns or privacy concern. Don't you have such concerns?
Talking about OYO and WeWork, for such new business models, contribution or gross margin is already positive. So gross margin from those new business models are positive at the moment already. Of course, acquisition costs -- user acquisition costs or development costs, that's something that we consider as early proactive investment. But since the volume is such huge in terms of growth, so the gross margin should exceed such fixed cost. And once it exceeds, you will see a dramatic improvement of profitability. And someone like a Google and Amazon and Facebook have proven Internet companies and AI companies, once you exceed our break-even point, so long as you see the positive net income in terms of unit business, you should expect huge profitability. So at the moment, we are proactively investing.
So how long can you wait until such a break-even point comes?
Even before break-even point comes, there might be some companies in our portfolio that will be listed because SoftBank Vision Fund is the fund that has really vision. So in 5 years or in 10 years' time, we should expect huge profit from those portfolio companies. And the more the value created by portfolio companies, better for SoftBank Vision Fund even before actual profit comes. So for example, valuation can be reflected on our result. In regards to Arm, at the moment IoT devices are shipped without any security solution embedded. But at the chip level, if we can ship chips in more secured way, Arm should be the best positioned. Chips for IoT devices are very, very small, very small memory and it's not easy to have security in those small chips. But Arm -- someone like Arm, if they are responsible for making platform with secured way, that would be probably best solution. In order to protect security, Arm is best positioned in terms of technology capability and privacy and concentration of information. We, together with users and device makers, want to protect privacy and the security of information. That's something that we want to do as a service. From one device maker to another device maker or from users to somebody else, without security privacy consent or without security breach, we will make sure that data won't be passed from one to the other without privacy consent or security.
So now time is up and that should conclude SoftBank Group Corporation's earning results.
Thank you very much. Again, this concludes the SoftBank Group Corporation's Earnings Result Announcement for the Three-Month Period Ended June 30, 2018.
The video footage of this meeting will be distributed on demand from our website. Thank you very much again for joining the SoftBank Group Corporation's Earnings Result Announcement for the Three-Month Period ended June 30, 2018. Those who are with us over the Internet or via telephone, thank you, indeed, for staying until the end of this meeting. Thank you very much.