DDI 1st-Half Profit Falls as Subscriber Growth Slows
--From AOl.-- Cooters
Tokyo, Nov. 15 (Bloomberg) -- DDI Corp., which bought two rival telephone companies last month to become Japan's No. 2 operator, said profit fell 21 percent in the first half as subscriber growth slowed.
Group net income was 8.6 billion yen, or 3,779.63 yen per share, in the six months to Sept. 30, from 10.9 billion yen, or 4,790.54 yen per share, a year earlier. Sales rose 28 percent to 858.9 billion yen from 672.3 billion yen a year ago.
DDI, also known as KDDI since its merger, added revenue from the Tu-Ka cell phone unit, after boosting its ownership share last year. Yet DDI managed to win only 8 percent of new mobile users in the first half as it failed to exploit its attractiveness to business customers or to meet its target numbers for cellular subscriber growth.
``This earnings report isn't going to be the catalyst to get investors back into the stock,'' said Kirk Boodry, a telecommunications analyst at Dresdner Kleinwort Benson Asia. Shares have fallen 63 percent in the year to date. Boodry says investors are ``focusing on execution in the wireless segment.''
Despite the appeal to business users of cdmaOne digital phones -- with their higher sound quality and data transfer speeds -- DDI has started focusing efforts on capturing the youth market attracted by rival NTT DoCoMo Inc.
``Why does DDI want to abandon business users of cdmaOne?'' said Yasumasa Goda, senior analyst at Merrill Lynch Japan Inc. ``DoCoMo's phones cannot be used for business. That's where DDI can appeal to users.''
DoCoMo's sound quality is suffering as it's running out of frequencies to accommodate its users.
Last month DDI, which offers domestic long-distance and international calling in addition to cellular service, bought KDD Corp., Japan's largest international phone company, and IDO Corp., the cellular phone unit of Toyota Motor Corp., to better compete with NTT and its cellular unit NTT DoCoMo.
Subscribers
Goda points out that cdmaOne users, which are mostly business people, spend more on average than subscribers to DDI's other digital standard, personal digital cellular, which is the same as DoCoMo's. Average spending by cdmaOne users was almost 9,500 yen per person in July, while PDC uses spent about 6,500 yen.
This month DDI started offering 50 percent discounts to college students. Trying to attract users with cheaper fees may not help, as discounts alone may not keep them from switching providers if DDI's contents and service aren't competitive, analysts said.
``DDI should think harder about improving the service itself, rather than selling the service cheaper,'' said Hironori Tanaka, an analyst at Morgan Stanley Dean Witter Japan Ltd.
DDI President Yusai Okuyama said users are canceling the company's cellular phone services faster than last year. In the six months to Sept. 30, 3.2 percent of users at DDI's cellular phone unit canceled the service, up from 3.0 percent a year earlier period. The rate for cdmaOne phones also worsened to 2.3 percent from 1.2 percent for the same period.
The rate at NTT DoCoMo for the same period was 1.5 percent.
It's doubtful DDI can meet its full-term subscriber targets, said Toshiaki Onoda, a telecommunications analyst at WestLB Securities Pacific Ltd. Asked if he agreed with Okuyama's assessment of DDI's earnings performance as ``not bad,'' Onoda said, ``Its cellular performance was just not good enough.''
Forecast
DoCoMo, DDI's largest rival, signed almost three-quarters of all new subscribers in the last six months, while DDI had 8 percent of the market for new cellular phone users under its au and Tu-Ka brands. The rest were signed up by J-Phone, the cellular unit of Japan Telecom Co.
The company cut its forecast for cellular phone subscribers at its au unit to 10.65 million by March from 11.05 million. DDI's Okuyama said the cut was because late shipments by handset makers reduced sales of color handsets. The company kept unchanged its forecast of 4.29 million Tu-Ka users by March.
An average forecast of three analysts polled by Bloomberg News sees DDI's full-year earnings reaching 9.9 billion yen.
While the company raised its full-year group net forecast to 13 billion yen from a forecast of 10 billion yen, that was because of a change in the method of depreciating investments.
``While the first-half numbers were a little better than the company's last forecast, that forecast was a downgrade,'' said WestLB's Onoda. ``The additional income was mainly derived from a 6 billion yen one-time gain resulting from a change in its accounting process.''
DDI also reported a group pretax, or current, profit of 31 billion yen in the six months to Sept. 30, from a loss of 4.6 billion yen a year earlier. That's better than the company's forecast in September of 20 billion yen in pretax profit.
Aside from higher sales, the improvement in pretax profit is mainly because DDI spent less to promote cdmaOne technology.
Nov/15/2000 5:42 ET
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How does marketing to the youth market imply abandoning business users? It sounds like business users have no option - and, unlike NTT, KDDI has no capacity problems. <g>
"DoCoMo's sound quality is suffering as it's running out of frequencies to accommodate its users..DoCoMo's phones cannot be used for business."
Yes. And capacity restraints and sound quality will only worsen through 2003 - with proposed, projected wCDMA capacity at 150K by 2003. Plus, of course, added strains from delivering video and CD-quality sound to cellular handsets (at 9.6kbs) that one analyst has stated as "key to DoCoMo's profit outlook." |
