SoftBank Is Starting to Look a Lot Like a Private Equity Firm

(Bloomberg) -- SoftBank Group Corp.'s metamorphosis into an investment company is becoming clearer.

The Japanese telecommunications provider and technology investor said operating profit rose 49 percent to 715 billion yen ($6.4 billion) in the three months ended June. That was fueled mainly by investment gains, including a 245 billion yen boost from its Vision Fund and 161 billion yen from the sale of subsidiary ARM's Chinese unit. Revenue was 2.27 trillion yen.

Underscoring Chief Executive Officer Masayoshi Son's change in focus, SoftBank is on track to separate its mobile operations, with the planned initial public offering of its domestic wireless business and sale of U.S. unit Sprint Corp. to T-Mobile US Inc. The Vision Fund, which Son formed last year with almost $100 billion from big backers, including Saudi Arabia and Apple Inc., will hold investments in the world's most influential technology companies. Son is betting on a future of robotics, artificial intelligence and disruption in older industries.

“Son today talked about his strategy of investing into companies that will profit from the impact of AI — that will probably happen 5 to 10 years from now, and that's when it will be reflected in SoftBank's share price,” said Hideki Yasuda, an analyst at Ace Research Institute. “But there are more immediate investments that are already showing results, and that's something investors have to start taking into account.”

The Vision Fund portfolio ranges from ride-hailing companies, digital payments and satellites to semiconductors, agriculture and cancer detection. The fund's contribution in the first quarter was mainly due to a valuation gain from the planned sale of Flipkart Online Services Pvt, the leading Indian e-commerce player, to Walmart Inc. and increase in fair value of WeWork Companies Inc.

“The Vision Fund will continue to deliver results every year and increase its value,” Son said at a briefing in Tokyo on Monday. “We are creating a group of the world's most advanced unicorn companies.”

As Son ramps up his investments, one clue to where he's looking to deploy the Vision Fund's cash is in his earnings briefings. His presentations over the past 12 years show how his thinking has evolved, and that his biggest obsession right now is over artificial intelligence.

“It may look like there is no rhyme or reason and I'm just making unrelated investments,” Son said. “But there is a unifying reason. It's AI. AI is coming like a Big Bang. Every industry will be redefined.”

The proposed $26.5 billion takeover of Sprint by T-Mobile would combine the No. 3 and No. 4 wireless providers in the U.S. The two carriers have been pitching their deal as a combination of underdogs trying to better compete against industry giants AT&T Inc. and Verizon Communications Inc.

SoftBank is interviewing banks to arrange the IPO of its domestic wireless business and plans to select several lead underwriters as early as August, people with knowledge of the matter have said. Foreign and local investment banks have been making formal pitches to SoftBank over the past few weeks, according to the people. The company aims for the mobile unit to begin trading in Tokyo in October and the offering could raise more than 2 trillion yen, they said.

Revenue from domestic telecom operations, which include wireless, broadband and fixed-line services, rose 4.6 percent to 880.5 billion yen in the quarter. Profit was little changed. SoftBank had 33.6 million mobile subscribers, an increase of 434,000 from the previous quarter.

Earnings from the operations may come under pressure as billionaire Hiroshi Mikitani's Rakuten Inc. plans to become the country's fourth major mobile-phone operator. Son, whose acquisition of Vodafone's Japan business in 2006 was the industry's biggest shakeup in recent history, has said he welcomes the competition.

“We have to go beyond being just a carrier in a maturing industry,” Son said. “That's why we are planning to rapidly increase collaboration with the Vision Fund.”

To contact the reporter on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson

©2018 Bloomberg L.P.