SoftBank Group Corp. has plans to begin implementing a more aggressive strategy in the artificial intelligence industry and other spheres of activity.
The intentions of the mentioned company became bolder and more ambitious after receiving quarterly profits and an increase in the value of assets, including Arm Holdings Plc.
SoftBank recorded a profit in the March quarter. The corresponding result exceeded the preliminary estimates. Such factors as investments in a holding company and financial injections into derivative contracts contributed to this positive indicator.
The rapid rise in Arm’s share price since its initial public offering (IPO) of securities has helped push SoftBank’s net asset value to a record high of 27.8 trillion yen ($178 billion). The corresponding figure is almost twice the total amount recorded a year earlier.
SoftBank CFO Yoshimitsu Goto says that the company currently has the funds to make new strategic investments. According to him, failing to take risks is the biggest risk for the firm. Yoshimitsu Goto says that the corresponding state of affairs observed in the past was a brake on the founder of SoftBank, which is billionaire Masayoshi Son. He also stated that the company is currently focused on solving a variety of challenges.
Masayoshi Son intends to return to implementing a kind of offensive strategy after having to deal with setbacks at Vision Fund, a large investment group, for many years. He founded the mentioned fund to bet on startups. Currently, Vision Fund is selling and writing down assets from its portfolio. These actions are because Masayoshi Son is now focused on artificial intelligence and semiconductors. As of the end of March, SoftBank had accumulated 6.2 trillion yen in cash pile.
In February, the media reported that Masayoshi Son was seeking up to $100 billion to fund a chip manufacturing venture that is expected to become a competitor to Nvidia Corp. and it will supply semiconductors, which are necessary for the functioning of artificial intelligence systems.
Also, according to journalists, SoftBank is currently negotiating the acquisition of the British startup Graphcore Ltd. The mentioned firm, which is at the initial stage of its existence, operates in the semiconductor manufacturing industry.
Yoshimitsu Goto says that SoftBank’s loan-to-value ratio has dropped to 8.4%. This indicator is a record low and well below the company’s target figure of 25%. Moreover, the mentioned metric is one of the favorites for Masayoshi Son, as it reflects the effectiveness of SoftBank’s efforts to ensure a balance between risks and opportunities.
Yoshimitsu Goto says that the 8.4% mark may be too low and too safe, talking about the NAV level. In the relevant context, he suggested that SoftBank might have the firepower for more intense offensive action.
The company’s net income for the March quarter was 231.1 billion yen. A year earlier, a net loss of 57.6 billion yen was recorded. For the full year, the company reported a narrower net loss of 227.7 billion yen.
Vision Fund reported an unexpected loss for the March quarter, which amounted to 96.7 billion yen. Several valuations of the second fund’s portfolio, consisting of hundreds of unlisted startups, were lowered. In this case, about 54 billion yen of realized and unrealized losses were recorded by companies such as JD Logistics Inc., Better Holdco Inc., DingDong Ltd., and AutoStore Holdings Ltd.
Satoru Kikuchi, senior analyst at SMBC Nikko Securities, said in a note prepared ahead of the earnings release that Arm’s IPO and rising stock prices were notable positives. The expert also stated about focus on strategic investments made by SoftBank, rather than on diversified investments such as Vision Fund 2.
Masayoshi Son is increasingly investing through the company rather than through the Vision Fund, which he founded seven years ago. In the fourth fiscal quarter, this fund disposed of assets worth $2.5 billion, investing only $120 million.
Satoru Kikuchi says that SoftBank’s attempts to use Arm technology and direct funding into artificial intelligence services may be well received by the market. Moreover, there is a possibility that SoftBank will offload its assets to T-Mobile, Deutsche Telekom, or Arm to increase the amount of funds for investing. Last year, the company sold off shares in assets such as Alibaba Group Holding Ltd. These actions by SoftBank were intended to finance new projects, strengthen its balance sheet, and buy back shares.
It is worth noting that the company was able to become one of the largest business players in Japan in large part because in 2000 Masayoshi Son bet on the Chinese e-commerce giant Alibaba, which over the following years was on a trajectory of steady and intensive growth. Currently, as above mentioned, SoftBank is cutting its stake in the specified brand. Masayoshi Son and Yoshimitsu Goto now admire artificial intelligence technology and the potential to invest in the relevant industry.
Arm is a central part of SoftBank’s portfolio. Currently, the mentioned unit accounts for 47% of the company’s assets. It is worth noting that in March 2020, the corresponding figure was only 10%.
Tomoaki Kawasaki, senior analyst at Iwaicosmo Securities, says that after holding back on investments, the company can resume relevant activities within the framework of a high-intensity approach.
As we have reported earlier, Softbank Considers Investing in Mistral AI.
