NTT, Inc. (9432) Earnings Call Transcript

Thank you very much for taking the time to join us today despite your busy schedules. We will now begin NTT Inc. financial results briefing for the 3 months ended June 30, 2026. I am Akaishi from the IR office and will moderate today's session. Thank you for your cooperation. First, let me introduce today's 3 speakers. Sasaki, Senior Executive Vice President, Representative Member of the Board; Nakamura, SVP and Director of Finance and Accounting Department; and Hattori SVP and Director of Corporate Strategy Planning Department. This briefing is being live streamed. Please note that an on-demand webcast will be available at a later date. Today's session will primarily focus on Q&A. For materials related to the financial results, please refer to the presentation materials available on our IR website.

[Operator Instructions] Now we will take your questions. Daiwa Securities, Tokunaga-san.

I'm Tokunaga from Daiwa Securities. I have 2 questions. First is a very orthodox question, the progress of Q1. My view is that DOCOMO was quite good. So in the East and West is in line and data was also enjoying strong sales. Is that my correct understanding? So compared to your initial forecast, initial target, how are your businesses progressing? That is my first question.

Thank you for the question. So I am Sasaki, became CFO in June. Thank you very much. So your question is on the progress of Overall, it was a strong financial result. First of all, starting with DOCOMO, mobile communication revenue is almost hitting the bottom. So towards Q2 and Q3, we will take solid measures to achieve strong numbers on a full year basis. For Smart Life, has already been informed DOCOMO in coal is now consolidated. So the sales and profit is recorded, and that is positively contributing to the results. And this will contribute positively in the first half. So that is an upside. And financial business is also trending strongly. Next, Global Solutions. It is also strong. Some data center business on a year-on-year basis, the data center that were sold to REIT the profit was recorded last year, but there's an absence of that profit this year. So it seems like the profit declined, but the data center demand is strong, and we are taking necessary steps and so we are now making good progress for the full year. IT services, as always, the overseas IT service profit progress seems a bit weak, especially in APAC is off to a slow start and falling short of our forecast. And so we need to watch closely. East and West are in line with the plan in U.S. and [indiscernible] are also trending strongly. Thank you very much.

So against the consensus, it is an upside of JPY 10 billion. So the consensus and your internal forecasts are not that different?

Basically, it's a slight upside, a little bit stronger than our forecast. So yes, you are right.

My second question is a rather vague question, but on a consolidated basis, the inflow and outflow of cash. DOCOMO due to inflation, the tariffs for revision to address the inflation will need to be considered. And so you are reinforcing the cash in, but Other competitors are now investing in convenience stores or cooperating with government data center deals, so they are cashing out. But you are now reinforcing overseas data center business. And in the key 17 sectors of the government, you are starting to strengthen your investment for CPG and data center. I'm sure the overseas M&A will continue overseas. So as CFO, how do you find the right balance between cash in and cash out. Where areas do you want to focus on? Or which areas are not so high priority. If you could give us an image.

From Q2 onward, DOCOMO SG is established. And so for DOCOMO, the financial business will be reinforced. So we will generate cash solidly going forward. That is point number one. And second point, this was in our plan. Our data center investment will be a 30% increase year-on-year. And the goal, we are using the external fund to reinforce our data center business. And as you mentioned, there is a strong demand now, so we will address and capture that thoroughly an AI-related business, is dynamic now. So AI-related business will need to be strengthened, and that is the important from Q2 onward. In Q1, [ Wind wire ] was acquired. And this is strong in Microsoft Azure. It has around 1,000 employees -- and this is part of our initiative to enhance our AI-related business. So AI business will be in Japan and overseas we will focus on capturing the missing pieces, filling the missing pieces.

So roughly speaking, DOCOMO in Japan, you will generate cash and use it for data to invest overseas. Is that the right balance?

In DOCOMO, we have the economics sphere to establish the solid economic sphere, we need to think of what else we need with DOCOMO. So whether it will be M&A or partnership, we don't know, but we will explore opportunities. So enhancing DOCOMO's competitiveness and data and DOCOMO enhancement of AI business will be the key, including DOCOMO business. So we want to aggressively pursue investment where we can have capture growth going forward. Thank you very much.

Next, from SMBC Nikko Securities. Mr. Kikuchi.

This is Kikuchi speaking. I have 2 questions. The first question is that for the first quarter, it was a strong performance, and you generated profit more than expected. And regarding the profit, well, the details of the breakdown is not still very clear yet, but you had an increase in profit. So there was a progress made. However, on the other hand, last year, and the other part, DOCOMO's smartphone replacement program and others increased, and there was a bit of a slow performance. Later on, in the DOCOMO part, I would like to ask about it in detail, but the churn rate is also increasing and maybe this is a special factor. But given the situation towards the second half, are you are they able to respond to the risk factors this fiscal year? And on the other hand, generating profit from the data centers. Of course, there are various opinions, but this year, you're planning several [ billion yen ]. And within that, based on the capital recycling way of thinking is at the base. So it's not a temporary thing. So I'd like to know about the progress there as well. the data center profit and DOCOMO's second half profit control? Do you have a thorough grip on it. That's what I would like to know.

This is Sasaki speaking. Hello. First of all, regarding your first question, the downward pressure for DOCOMO, what are the factors? Regarding this fiscal year, the 3G spectrum suspension, we stop providing the service. So that was a temporary impact. But basically, we're able to reduce the decline in subscribers and NP is increasing. -- and the July recent M&C was net positive is what I heard. So until now, it's performing. And regarding the second half, as you said, there was a replacement timing of last fiscal year, and we have that impact, but we are revealing it once again. And therefore, at this point, there is we are able to have a control on the negative risks. Having said that, August onwards, the collaboration with DOCOMO Financial Group is going to start in full scale. Therefore, regarding this part, we have positive expectations. That is the current situation. And as for the data centers, the data center REIT and including the [ DevCos ], currently, we are moving forward with various preparations. Regarding the reach, as you mentioned last year, we have established the REIT. So we need the box. So inside that box, our kind of data centers will be included. As I would have thought looking at the market situation. And as for the [ DevCo ], currently -- including U.S. and Europe, we have started the preparation work. So within the end of the fiscal year, several projects will move forward. And including the plan of sales again, we would like to surely secure that part.

The second question. Maybe there may be nothing that you can share at this point with us, but Ion. I believe that this fiscal year with the opportunity year for PC2. And that Shimada-sans' presentation, several pages was used and explained to us. However, the news that we have expected was not included in there. For example, the numbers or where it's going to be adopted or regarding PCI, et cetera. regarding this, at what timing, I'm sure there's nothing you can announce yet. However, at what timing, what kind of things as a possibility will come out? If you able to share something, I would like to know about it.

I, myself, assumed this current position in June. And with the keyword IOWN, what kind of [ IOWN-tization ] scenario can be created. We have started various discussions regarding that. And regarding the current situation, I'm in the process of confirming various things. Ion related technology in addition to the network-related technology computing platform or AI model-related technology or data center-related technology and as you pointed out, the Photonics electronics conversions, device type of products; and four, improving energy efficiency is the technology as well. So it's broadly rolled out in terms of technology. And regarding the Photonics technology, as you have mentioned, NVIDIA is quite interested in it. So the efforts that we have been making up till now and the direction is not -- was not a mistake. And globally, what is starting to become necessary if this photonics electronics convergence technology. And we also established an IOWN fund. We made announcement the other day. And that type of new deep tech-related start-up companies discovery. It's also conducted in parallel. So including that, how can we utilize this photonics technology and establish an ecosystem globally, it's going to become the key. So as I have mentioned at the start, towards this broad technology areas, structurally, we want to show that. And in the future, how that is going to be monetized. We are sorting it out and I would like to be able to explain that to you. So I'd like to receive the continuous understanding and support.

Next, Nomura Securities, Masuno-san.

Masuno from Nomura Securities. So looking at the segments this time, the integrated ICT is solid. But on the other hand, Global Solutions, Japan, you're enjoying profit in all segments, all areas. But overseas operating profit is JPY 14.3 billion. So full year, you plan to exceed JPY 200 billion, excluding the gain on sale of data center, how can you achieve JPY 200 billion from this current JPY 14 billion. Until now, DOCOMO was a shortfall, but data International will be a weak factor or not? What do you think?

So as the former President of Data Group, let me talk about the numbers. For the international side, we call it hockey stick. Q1 is small. Q4, the profit growth dramatically towards Q4. That was the plan we had -- so towards Q4, profit will grow Q1, 2, 3 are low, but Q4 is much larger. And that has been our plan and our results so far. Since last year, 1 trend we see is IT services profit fall short of the plan and data center profit offset that or cover the shortfall. And in total, we meet the plan overall. That had been the case, the trend since last year. This level in Q1 is not a big shortfall from our expectation. As I mentioned earlier, APAC, the numbers are a bit weak right now. So we need to take measures on APAC in Q2 and Q3. So that will be very important for our international overseas IT services business. And this profit includes the gain on sale of data center. So we will control that and find the right timing to sell in the appropriate market. So we will combine these measures to build our numbers.

Integrated ICT in Smart Life and consumer communications, profit is down, but the profit decline is becoming smaller. Enterprise is a slight decline in profit. So if you could elaborate on the reasons, if enterprise turns up, then the integrated ICT will enjoy a big profit increase. So what do you -- how do you foresee the enterprise in the second half?

As you rightly said, in DOCOMO, enterprise is the only area where the profit is down year-on-year. There are large projects where the cost is recorded first. So the cost -- the expense recording is a big factor here. This is a onetime temporary loss. The business itself is very strong. So from Q2 onward, we think we're confident we can be positive year-on-year.

So including Smart Life, the strong business DOCOMO can have a positive number. So integrated ICT at the current pace, although have an upside, exceed the plan quite significantly. So is that the right understanding? Can I expect that to happen?

Yes, I personally have high expectations. Yes.

And last question, [indiscernible] multimodal infrastructure infra project, [indiscernible] is making an investment for the integrated lab, but NTT has not made an investment. This is a national project. So we wanted an NTT flag, NVIDIA, 140-megawatt GPU 28,000 and 14,000. NVIDIA CPU Tramexa will be included for this national government JPY 1 trillion project, will we follow within NVIDIA So for this Metiproject, what is your position of NTT?

For [ NVIDIA ], we decided not to participate. That is our decision. But on the other hand we will build the foundational model and leverage it in the country. So we will not participate in the initial project. But eventually, once we develop the foundation model, we will think of leveraging it and partnerships, many partnerships are possible. The dedicated AI projects will emerge going forward. [indiscernible] is physical AI-centered foundation model. And there are other vertical AI as well that will appear emerge going forward. So as NTT Group, we will be aggressive in other AI areas to contribute to the national government project. And we are doing a big business globally. So from a global perspective, we will enhance our competitiveness based on the latest trend in the U.S. And think of transferring that to Japan. So that is our stance going forward.