FEER: Softbank Founder Looks Less Like A Conquering Hero
November 8, 2000
Dow Jones Newswires
-By Bruce Gilley, Chester Dawson, Dan Biers in the Far
Eastern Economic Review published Thursday.
HONG KONG -- If there was ever a time when the hopes of a whole generation of entrepreneurs were riding on the fortunes of one company, it is now.
The entrepreneurs are the builders of the New Economy. The company is Japan's Internet giant, Softbank Corp. (J.SFT or 9984) To the builders of the New Economy, Softbank is the dream of a super-connected and super-profitable Internet juggernaut.
Until recently, that dream was alive and well.
Softbank and its founder, Masayoshi Son, were the toasts of Asia. When its shares peaked in February, the company was worth $190 billion. Investment bank Lehman Brothers said the figure would double by year's end, making it equivalent to 8% of Japan's GDP.
But today, Softbank has stumbled. The company is worth just $23 billion, and Son, who used to affect a gentle professionalism, is sounding more like a frustrated evangelist: "This is like a religion, OK? You believe in one big theme, no matter whether people understand it or don't understand it," he told the REVIEW in a recent interview.
Softbank manages about $6 billion through 11 venture-capital funds worldwide, half of it from outside investors. Directly and through its funds, it has stakes in roughly 450 Internet companies globally.
In the words of Ronald Fisher, Softbank's main man outside Japan as vice-chairman of U.S.-based Softbank Inc., the company is "the largest and broadest-based participant in the Internet economy." It's also a model for Internet zaibatsu elsewhere, including Hong Kong's Pacific Century CyberWorks (PCW) and U.S.-based CMGI (CMGI).
A lengthy investigation of Softbank by a team of REVIEW reporters, including interviews with Son and other top Softbank executives, reveals a company pursuing different agendas and at times even groping for direction. Its vast store of Internet-related investments shows few signs of coming together to form the basis of a coherent and durable operating company in the near future.
By most estimates, it still makes most of its operating profits from distributing software. Organizational weaknesses and confusion over strategy are partly to blame. So too is Son's penchant for rapid-fire deal-making.
In the meantime, the downturn in Internet stocks worldwide is hampering Softbank's ability to raise money, weakening an already deteriorating balance sheet.
Even the California cool of Softbank's U.S. venture-capital head Gary Rieschel doesn't conceal the need for firm action. "People need to have some comfort that someone's got their hand on the tiller," says Rieschel. "Masa has to respond to that."
Softbank isn't the only putative Internet giant struggling with the shortcomings of the broad-brush approach to investing in a tumultuous industry. Besides PCCW and CMGI, other firms like U.S.-based Internet Capital Group have taken a similar approach, and suffered for it. But to varying degrees, companies like CMGI and ICG have already changed course by announcing more-focused strategies and expanded disclosure. Softbank has yet to take up that challenge.
Shouldn't Be All Things To All People
The immediate need, analysts say, is for Softbank to zero in on certain sectors of the Internet rather than try to be all things to all people. Closely related is the need for more disclosure and less hype to attract investors.
That could mean putting in place a better financial and organizational structure to replace Son's freewheeling laissez-faire style. If it does these things, Softbank could still realize its dream of "building the global e-future." If not, the corporate upstart could become the largest and most painful disappointment of the Internet age.
"They're stretching themselves too thinly. They need to focus," says Lee Yen Anderson, an analyst with Indosuez W.I. Carr Securities in Tokyo. "Otherwise they'll have to write off a lot of investments and shareholders will never see a profit."
Masayoshi Son's own garage story goes back to his founding of Softbank as a software distributor in Japan in 1981. Nothing much was heard from the company until 1994, when it listed on Japan's over-the-counter market.
In the next two years, Son made waves by buying U.S. computer-trade show and publishing concern Ziff-Davis, as well as memory-board maker Kingston Technology. But those investments went badly wrong. Softbank paid roughly $3.5 billion for them, only to sell them a few years later for about $1.7 billion.
Son was saved, however, by his U.S. venture-capital chiefs, who, in 1995, discovered a little-known portal called Yahoo!. Softbank has lived off its spectacularly successful $433 million investments in Yahoo! and its Japanese arm ever since. Its stakes in the companies were worth $13 billion by early November, accounting for more than two-thirds of the value of Softbank's listed holdings.
Softbank has had other successful IPOs, to be sure. These include computer anti-virus specialist Trend Micro in Japan, and telecoms-equipment maker UTStarcom in the U.S. It has also successfully brought other branded U.S. companies to Japan such as on-line brokerage E*Trade.
But more often than not, Softbank's public offerings have been a flop. Shares in PeoplePC, a much-touted computer-services provider, have fallen to nearly a third of their offer price since its listing in August.
Its Internet infrastructure listing, Asia Global Crossing, has remained at its already low October offering price. Sure, a lot of Internet IPOs have failed spectacularly in recent times, but Softbank was supposed to be different; it was the apostle of the Internet.
By the REVIEW's estimate (Softbank itself wouldn't provide a figure) only a handful of the company's roughly two dozen listed holdings in the U.S. are making money.
"A lot of people think Softbank was lucky, had a great success in Yahoo!, and it is now in the process of losing a lot of money over time," says Fred Hickey, publisher of The High-Tech Strategist, an influential New Hampshire-based investment newsletter.
-(For the complete story, see this week's edition of the Far Eastern Economic Review.)
-0- 09/11/00 00-00G
--------------------------------------------------------------------------------
URL for this Article:
interactive.wsj.com
--------------------------------------------------------------------------------
Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved.
Printing, distribution, and use of this material is governed by your Subscription Agreement and copyright laws.
For information about subscribing, go to wsj.com
Subscription may be required to view article.
Used with permission from The Wall Street Journal, WSJ.com. Copyright 200__
Dow Jones & Company, Inc. All rights reserved. |
