David Corbin from Tech in Asia returns to our podcast to discuss the three major events that rocked the SoftBank Group in the past few weeks. We reviewed the departure of Nikesh Arora, the rapid divestments of SoftBank’s stakes in Alibaba, Gungho and Supercell and their most expensive gambit in acquiring ARM. In our conversation, we analysed why SoftBank acquired ARM from their strategy with robotics and telecommunications to leveraging the macro-economical conditions of UK and Japan and offered an understanding to Masayoshi San’s investment strategy. Last but not least, we examine the impact of these events to the future of the SoftBank Group and whether we should be bullish or bearish about the company.
Here are the interesting show notes and links to the discussion (with time-stamps included):
- David Corbin, Director of Content Strategy, Tech In Asia (@CorbinDB, LinkedIn, Tech In Asia)
- Since our last conversation, what have you have been up to? [1:25]
- Check out their upcoming Tech in Asia Japan 2016 Conference in 6 Sep 2016.
- The SoftBank Group in 2016 [2:04]
- Recap: Check out the Analyse Asia podcast episode 51 we did in 2015 where David and BL analysed the entire SoftBank Group. [2:12]
- A brief introduction to SoftBank: Japanese multinational telecommunications and Internet corporation, with operations in broadband, fixed-line telecommunications, e-commerce, Internet, technology services, finance, media and marketing, semiconductor design, and other businesses. Market capitalisation: 9.15T Japanese Yen equivalent to US$86B. Most well known for owning Sprint in the US, investor to Alibaba and many prominent startup unicorns in Asia and US. [2:19]
- News #1: Nikesh Arora’s stepping down from SoftBank and Masayoshi back to the helm. [3:15]
- Nikesh Arora’s comments on why he has stepped down (Source: Fortune) and his lesson: always know when to step down. What are your thoughts on him stepping down? Handled well on his departure with media interviews and twitter. [3:35]
- Note: Nikesh Arora has divested all his holdings of SoftBank upon his departure.
- In your opinion, what really happened? Here are three theories which we discuss in our conversation:
- the poor performance of the investments in India and Korea, for example, Housing and Coupang. [5:16]
- the shareholders attack on Arora due to conflict of interest with his advisory role with Silver Lake Partners, and even with his resignation and clearance from internal investigation, the US SEC is now opening a probe on Nikesh Arora. [6:50]
- Masa San’s decision to retain his role as CEO for another 5-10 years. Does this highlight the failure of succession for SoftBank highlight the Asian strong man syndrome? [8:30]
- Corporate culture of SoftBank and its implications to succession within the company. [10:47]
- News #2: Divestments of SoftBank’s portfolio, most notably Supercell (US$10.2B) to Tencent and Gungho (US$689M) [12:08]
- In that period where the exit of Nikesh’s exit, SoftBank offloaded US$10B of Alibaba stock bought by Temasek, GIC and Alibaba and others etc. They also sold their stakes in Gungho and Supercell notably to Tencent for US$10B. The divestment came in rapid fire, and what was the mood on SoftBank then? [13:15]
- Does Japanese’s negative interest rates has an impact to why SoftBank bought ARM? [14:22]
- News #3: SoftBank’s GPB24.3B acquisition of ARM, first reported by FT.com [14:35]
- The deal has the support of Jack Ma and negotiated after Nikesh Arora’s exit – Reuters.
- A brief introduction to ARM: British multinational semiconductor and software design company headquartered in Cambridge, England, with market of cap of GBP25B equivalent to US$23.53B. Known for their chip architecture, and 80% of the mobile devices are running on an ARM chip and that’s how they beat out Intel in the mobile world. [15:00]
- With the acquisition of ARM with US$32B, we now know why SoftBank suddenly divested their assets. So, why did SoftBank decide to acquire ARM? [15:39]
- Is it really about the Internet of Things market? [16:48]
- We know that Masayoshi often pull gambits which are counter intuitive, and he has once shared his investment philosophy in Harvard Business Review in 1992 about what businesses he invest in. How does ARM fit into Masayoshi’s investment philosophy and his track record of successful investments? [17:09]
- Did SoftBank overpay for their acquisition of ARM? Does the acquisition create synergies within the SoftBank Group? (Source: NYTimes) [18:50]
- Masa’s comment in the latest FT article: Buying ARM is about the coming “singularity” in Internet of Things, AI and robotics. [21:18]
- Why SoftBank bought ARM, similar to Huawei build their Ascent phone to work out well with their enterprise carrier network, and access to the chip is important for robotics and devices ecosystem. [22:15]
- SoftBank’s track record to successfully reinvent themselves across the past two decades. [22:40]
- SoftBank has recently dropped the advantage of Japanese users to use the Sprint network for free. The acquisition of ARM may imply the end of Sprint. [23:20]
- Is the ARM investment an indication that Masa is back on the driver seat? Another theory on why Masayoshi Son may decide that Nikesh Arora is not the right successor to his company, given the way how he pull very big gambits as compare to Nikesh’s incremental and corporate approach. [24:30]
- With three big news on succession, divestments and gambit for SoftBank, where do you see its prospects in 2017? Should we be bullish or bearish on SoftBank? [26:10]
- Lessons from other companies in how we should look at SoftBank: LINE’s recent IPO with US$1B revenue. [27:00]
Here’s the paragraph in HBR article in 1992 where Masayoshi San, founder and CEO of SoftBank laid out his investment philosophy:
“One success measure was that I should fall in love with a particular business for the next 50 years at least. Very often, people get excited for the first few years, and then, after they see the reality, they get tired of the business. I wanted to choose one that I would feel more and more excited about as the years passed.
Another factor was that the business should be unique. That was very important to me. I didn’t want anyone else doing exactly the same thing. A third was that within 10 years I wanted to be number one in that particular business, at least in Japan. And I wanted to pick a business where the business category itself would be growing for the next 30 to 50 years. I didn’t want to choose a sinking ship.
I had all those measurements, about 25 in all, and 40 new ideas. I took a big sheet of paper, and I drew a matrix and put down scores and comments for each. Then I picked the best one, which turned out to be the personal computer software business. That was the start of Softbank.”
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The show is hosted by Bernard Leong (@bleongcw) and are sponsored by Ideal Workspace (Twitter, Facebook and LinkedIn) with their new Altizen Desk on Indiegogo (Twitter, Facebook, Medium). Also check out Ideal Workspace’s new standing desk, Altizen and sign up for their mailing list. Sound credits for the intro music: Taro Iwashiro, “The Beginning” from Red Cliff Soundtrack.