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Earnings Transcript for 9432.T - Q4 Fiscal Year 2022

Natsuko Fujiki: We will now start the briefing of NTT's Financial Results for the Fiscal Year Ended March 31, 2022. Thank you very much for attending today despite your busy schedules. I am Fujiki from the IR office and will be facilitating this session. First, I would like to introduce today's attending members. First of all, from NTT, Representative Member of the Board and President and CEO, Mr. Sawada; Representative Member of the Board, Senior Executive Vice President, Mr. Shimada; and from NTT DOCOMO, Representative Member of the Board, President and CEO, Mr. E; Representative Member of the Board, Senior Executive Vice President, Mr. Hiroi. Today's briefing is streamed live online. We're also planning to stream the video on our website at a later date. Therefore, we seek your understanding beforehand. As for today's explanation materials, please refer to the presentation materials posted on our company website. On the first page of the materials points to be considered as stated. So we kindly ask you to please go through them. After this, Sawada, President and CEO, will explain the overview of the financial results and receive your questions from the floor. Mr. Sawada, please go ahead.
Jun Sawada: . Thank you very much. My name is Sawada. I will provide you the highlights of the fiscal '21 financial results as well as talk about the forecast for fiscal year 2022. So we'd like to start to -- we'd like to start with Page 4 of the slide. This shows you the summary and the highlights of the consolidated results. We saw increase in both operating revenue and operating income year-on-year, and operating income, operating revenue and profit all reached record high and profit exceeded ¥1 trillion for the first time in history. As for operating income, operating revenue, due to increased revenue, NTT DATA operating revenue increased ¥212.5 billion and reached ¥12,156.4 billion. With the increased revenue, foreign exchange impact accounted for roughly ¥127 billion. As for operating income, as a lot of increase in revenues to various opcos and cost reduction, operating income increased ¥97.72 billion year-on-year up to ¥1,768.6 billion. As a result of increase in profit linked to increase in operating income as well as profit impact of minority of shareholders after DOCOMO became its wholly-owned subsidiary firm and also one-off factors such as covered tax, profit increased ¥264.9 billion year-on-year, up to ¥1,181.1 billion. As for operating -- as for overseas operating income margin, this improved 3.3 points up to 6.3% due to increase in NTT DATA revenue and also structural reform. The number is now 6.3%. In the following page, we show you some of the new segmentation that we are applying since this fiscal year. In January, in conjunction with the transfer of NTT Communications and Comware to DOCOMO Group, we -- what we did was to review the '21 fiscal year results. And we acted segmentation, so the bottom half on this chart indicates the new segment. We have created the integrated ICT segment by combining DOCOMO Communication Comware. And also NTT Ltd was taken to International Communications business segment was combined with DATA Communications segment. So we now have four segments as you can see, Integrated ICT Business segment, Regional Communications segment, Global Solutions Business and Others. Page 6. This shows you the forecast summary by segment -- correction, results by segment. The bottom -- the top shows revenue, the bottom shows income. You'll find the NTT DATA, the Global Solutions Business has seen very robust digital business. This has proven to very positive results, as you can see. On the other hand, turning to operating income. Across all segments, we saw an increase in operating income across the board, as you can see. Let's now turn to Page 8. This shows you the fiscal year 2022 forecast summary. Now fiscal year 2022 is the year for the implementation towards achieving the midterm financial target in fiscal year '23. Fiscal '23 is the final year of the plan. So therefore, we are expecting increase in operating revenue, operating income, and also profit. And all indicators include operating revenue, operating income, and profits will all reach record high levels. We will see expansion in all this column as for EPS. On top of the increase in operating income, and I'll talk about this later, but as a result of new share repurchase, we are anticipating ¥340 for fiscal year 2022. Turning to Page 9. We show you the forecast summary by segment for fiscal year 2022. The top part shows operating revenue, bottom shows operating income. Across all segments, we are expecting increase in both operating revenue and operating income across the board across all the segments. Next page, please, this is Page 10. This is in small print. But this shows you forecast summary by company. This shows you the forecast summary for fiscal year 2022. On a non-consolidated basis, DOCOMO will see increase in both operating revenue and operating income for fiscal year 2022. Also this week, we announced about the combination of NTT Overseas Business NTT Ltd. And this will start from October this year. So the plan for NTT Ltd. will recruit only that over the first half of this year for the purpose of forecast summary. Now on the bottom of the page, you show your reference, we show NTT DATA prior to integration of overseas business, NTT Ltd. for full fiscal year for your reference, both expecting increase in both operating revenue and operating income. In particular, for NTT Ltd., they're expecting fiscal year -- they're expecting increase in revenue of ¥175.3 billion year-on-year. In '21, they had a lot of orders, but because of semiconductor shortage, they were not able to transfer that in the business. But that profit will not be incorporated into fiscal year 2021. So orders outstanding will come into play in fiscal year 2022 for NTT Ltd. Turning to next page, Page 11. This shows you the operating income trend and operating revenue trend. This shows you, on a quarterly basis, the trends of the operating revenue and operating income over the last couple of years. So the right-hand side shows increased operating revenue and bottom shows increase. So therefore top right is the best. '18 is in blue. Mobile communications went down to green in 2019 because of the price reduction. Then we had the COVID-19. And in fiscal 2020, we were in the yellow board. We're starting -- we started with a decline in both operating revenue and operating income, but we began to have quarterly improvement. Last year is in the red part. In the first quarter of the last year, we had increase in revenue but decline in profit. And we received many questions about it, and now we were on track. But then this was very much in line with our guidance and plan. At the end of the day, we were able to complete the year by over -- by exceeding our target and guidance. So where are in terms of fiscal year 2022? This is the purple part. We're expecting increase in both operating revenue and income in fiscal 2022. So let's turn to Page 12. This page is showing the progress overview of the medium-term financial targets. Overall, it is on track. The darker green color is showing achieving the target. In this chart, you see CapEx to sale. In FY '21, it is below 13.5%, which is at the very bottom line. We have finished the fiscal year, 13.1%. So we have achieved the target. And second line from the top, overseas operating income margin. There were some concerns, I believe. But FY '21, it doubled from 3.3%. It has jumped up to 6.3%. And FY '22 forecast, it seems that at that year, we'll be exceeding the 7.0%. So in FY '22, we believe that we'll be able to achieve the target for FY 2023. Where you see the red arrows is last autumn, we have revised upwards the financial targets, EPS and cost reductions. For EPS in FY 2021, we have achieved ¥329, meaning that the original initial target, ¥320 was achieved two years ahead of schedule. And as for cost reduction, the initial target was ¥800 billion, but we have achieved ¥840 billion FY 2021, two years ahead of schedule. And FY '22 forecast is ¥930 billion, and the probability of achieving that is quite high. Next page, on Page 13, we have summarized the shareholder returns. And as for the dividends and forecast, we expect it to be ¥120 per share as the annual dividend, which is ¥5 increase from FY 2021. This was resolved in today's Board of Directors meeting. With this, we expect it to increase for the 12th consecutive year since FY 2011. Also, the Board today resolved to conduct a share buyback of up to ¥400 billion in total. As already announced, the Japanese government has included in their budget to sell the shares that they hold of ours and including buying from the open market. We are planning to conduct a share buyback of up to ¥400 billion. As for the topics, I will briefly go over to them. Page 15, please. We are going to reorganize the holding company. We are going to establish Internal Audit Department and enhance the internal audit. And the Head of IR Office, Ms. Fujiki, will be the Head of the Internal Audit Department. We would like to find her to become the Head of the Internal Audit Department. And we'll also be enhancing the global branding. And we will newly establish IOWN, our product design center. Regarding the third point, this is done in order to accelerate the commercialization of IOWN concept. So from the R&D stage, we are creating this organization to commercialize. And the next page is the new space business realization. This is something we have already announced. We are going to establish a joint venture company this July with SKY Perfect JSAT. And we are going to build a space integrated computing network. Next page is promotion of sustainability. As for this, there are three themes, and we would like to embody all three of these themes, and we have set the target, and this will be reflected to the directors' compensation. First is greenhouse gas emission volume has got less than 3.075 million tonnes. And this is a 34% reductions compared to FY 2013. The progress is on track. And carbon neutral is a 2030 for overall. It's a 2040, we are moving on track. And as for B2B2X revenues, it seems that we will be able to achieve ¥600 billion. As for new female manager appointment rate, we are aiming to achieve 30%. FY '21 result was 29%. As for the person now matters, oh, okay. The next page, Page 18 is showing the progress overview of the medium-term management strategy initiatives. I would like to skip that. And on Page 19, I would like to explain about the personnel matters. And this summarizes the way of thinking regarding the personnel matters. As for the individual personnel announcements, please refer to the individual companies press releases. At this time, regarding the personnels, we reorganized the personnel structure to establish a new management style and to further strengthen governance. For the holding company, the number of members of the Board will be increased from the current eight members to 10 members. And out of that, five will be outside members of the Board. I, myself, will be a representative direct Chairman, but I will become the Chairman of the Board Director. So governance-wise, the executive side is four and the six will be on the government side on the Board. And in order to strengthen the corporate auditor system, one full time outside corporate auditor will be added. And ratio of female member of the Board Audit and Supervisory Board members and Senior Vice Presidents to be increased over 30%. Internal control office will be reorganized into an Internal Audit Department under the direct control of the President. And we also have established a new office in charge of Economic Security. The personnels, including the overall group, there are many areas that we have renewed. Especially as for the holding company-related matters, more than half of the member of the Board or the Executive Senior Vice Presidents were renewed. That is all from my side. Thank you.
Natsuko Fujiki: Thank you very much, Mr. Sawada. We'd now like to take questions. The operator will now explain how you can ask questions.
Operator: We'd now like to start the Q&A session. . From SMBC Nikko Securities, Kikuchi-san. Please go ahead with your question.
Satoru Kikuchi: Thank you. Kikuchi here. Thank you very much for this opportunity.
Jun Sawada: Thank you.
Satoru Kikuchi: Thank you. So NTT Ltd. and NTT DATA, I want to ask a question about NTT Ltd. and NTT DATA stock prices went down, but you're fine, your stock prices are fine. I think there are some concerns about NTT DATA. Are there concerns that NTT DATA's profit could be coming down? So I want to ask a question against this backdrop. So NTT Ltd., your business structural reform at NTT Ltd. Do you believe that -- are you at a situation where you can declare that such a transformation of NTT DATA is now over? And because that juncture is over, you now have combination with NTT DATA. So the first, do you believe that since another six-month remains, are you going to take additional measures? So can you share with us to what extent NTT Ltd. transaction reform is over? I think second quarter, third quarter compared to that, I think the results are different. What is the difference? What's the reason for this difference in the fourth quarter as far as NTT how the company is concerned? What support are you going to render for NTT DATA? Mr. Homa, the President of NTT DATA, he might be saying that nothing needs to be done. But I think Mr. Sawada, and you've got to be the Chairman, Mr. Sawada, suppose you've got to take leadership and you try to go to prep up NTT DATA. So what type of support are you considering to provide the NTT DATA? That is my first question. Thank you.
Jun Sawada: Yes, thank you for your question. So with regard to the structural transformation at NTT Ltd., I think in principle, most of the transformation has carried out in fiscal year 2021. I think in the past, we had a question. Social transformation will -- is something that needs to be continued over the long-term. But having said that, are we going to see a very large number of people retired? That type of program has been mostly done into fiscal year 2021. Now, you asked about the situation in the fourth quarter. Yes, we had restructuring, and we had some impairment loss. And also on top of that, we carried out additional structural transformation, and that translated into cost. So operating profit may seem smaller in the fourth quarter compared to second quarter and third quarter because of those results. But the basic profit -- but the profit, this was severely affected by the semiconductor shortage situation. Why? They handle routers and servers. They deliver those servers and routers and receive maintenance fee from the customers. But then they can talk products that they could deliver. They receive orders, but they're not able to translate that into profit and revenue. That had a significant impact in fiscal year 2021. So that be the case from October we'll see combination with NTT Data. So the base is already done. Now you talk about assistance, the second part of your question. We need to pursue combination in the case of the brand, it's important that we make sure that there's brand penetration. We had to promote that. And also people we need to support in terms of personnel. We also need to support in terms of the governance, which is at the basis of this. So as far as all the company is concerned, we would like to make sure that we provide strong support under the new structure. Also, this is something over the long-term. I'm talking, but maybe your -- I'm talking about your year two term. We have IOWN products and solutions that will be developed in the context of IOWN will be -- will be coming on to the scene. In terms of online, DOCOMO is providing a lot of support. So next type of solutions in versions will be coming up. So NTT holding company and other top NTT Group companies together can support NTT DATA and NTT Ltd. combination. I hope that answers your question.
Satoru Kikuchi: Yes. Thank you. I'd like to turn to my second question. It's about shareholder return. This again, divided into two parts. Share repurchase of ¥400 billion. Now maybe based on this question today, involve the government will be about ¥250 million, which means that you have ¥50 billion will remain. Yes. Yes, ¥50 billion will remain after you do the share purchase from the government. So the ¥30 billion will be done to both cost and from the market, right? So is my understanding correct? Or are you going to purchase from the marketplace through other means? ¥50 billion isn't -- are you going to consider procurement to finance this to buy from the marketplace? And also in terms of the dividend, you have a plan to increase your dividend by ¥5. In the past, you had ¥5 increase. But then after third quarter, you increased that increased to ¥10. NTT DATA had upward revision. And of course, of the basis, NTT also had upward revision in the -- in the dividend. But then there is no increase from dividend revenue from DATA. So maybe your share increase, your dividend increase had no relevance with DATA's performance. Now this time, if you're going to increase your dividend decrease of ¥5 to ¥10, how will you finance that? I think ¥5 increase in dividend is a bit disappointing. So can you talk about the possibility of ¥10 increase?
Jun Sawada: Thank you. Turning to your first question. So are we going to buy proactive on the marketplace. Yes, the amount is ¥50 billion based on the stock price today, right? So the share repurchase program is up to ¥400 billion. It depends on the stock price of the given time. But inclusive of the market acquisition, yes, we have set the limit of ¥40 billion for share repurchase. Now is there -- now we can -- at this juncture, I cannot respond as within concerning bridges from the market aside from this authorization. Now with regard to dividend, as you pointed out, up until now, yes, we have had cases where we have indicated an increase in dividend in the third quarter. And the biggest dictating factors within that, we announced an upward revision after the second quarter. And the source of dividend, if the situation is good, then we should, of course, return the benefits to our shareholders, and that should be continuous. So this time around, we have a very positive business plan. Of course, the global environment is tough, but we have very positive business environment. So if the situation is good, I'm sure the new President, Mr. Shimada, will make decisions accordingly based on that situation. I hope that answers your question.
Satoru Kikuchi: Yes, thank you very much. Could I ask another question? The third question, if I may. It's about DOCOMO. Now the segmentation has changed in DOCOMO, and it's very difficult to have the understanding in depth, but mobile communication service probably decline -- will decline by ¥120 billion I think that's the plan. But so you are anticipating ¥8 billion increase in operating profit for DOCOMO. ¥12.2 billion increase is the case for Smart Life, I would imagine. So unless you have significant cost reduction, you should not be able to enjoy increase in operating profit based on those numbers. So DOCOMO's mobile communication service is on the downward trend. But how is it that you're able to secure profit -- a positive profit? That's my last question. Thank you.
Jun Sawada: Okay, Mr. Hiroi, would you like to respond to that?
Takashi Hiroi: Yes. Thank you. This is Hiroi -- Hiroi from DOCOMO. I would like to respond to your question. Yes, indeed, Mobile Communication Service revenue is declining. It's, of course, significant. At this moment, we are taking measures on the cost side to offset this loss. So we are reflecting -- we're factoring in cost efficiency improvement. And the driver of the cost efficiency improvement will be the streamlining and the efficiency in this sales channel. So this is already explained in the presentation material. So for example, we'll be using online functions. And through this, we want to improve efficiency in the sales channel. So through that cost, we'll be able to offset the cost. Also, NTT communications at Comware has now been integrated. And as a result, enterprise business, we'll see positive increase. So these are the positive drivers. So I believe that for new DOCOMO Group, as a whole, we'll be able to realize increase in operating profit at the end of the day.
Satoru Kikuchi: Thank you very much. I would appreciate the comments later on.
Natsuko Fujiki: I would like to take the next question next, from Nomura Securities, Mr. Masuno, please go ahead with your question.
Daisaku Masuno: I have several questions also. But the first one, the group reorganization, I believe that it has come to cycle end. But DOCOMO communication integration and years will be 200 trillion million yen, but with video ¥300 million increase and you have the increase in revenue, but also the contribution to the profit or the cost reduction contribution to the profit, the remaining part next fiscal year is going to contribute by 100 -- the difference of the ¥100 billion contribution to the profit difference. So this part, this fiscal year and next fiscal year is a balance. Can you explain about that? And also another point is that the global reorganization. Before, you said at FY '25, you said the synergy is ¥30 billion in terms of operating profit from NTT's Holdings. It's about a 2% synergy. The cost reduction, I'm relieved that's quite done in the backyard side. But to what extent is that going to have a positive impact on increase in revenue is what is difficult to understand. So this ¥30 billion cost reduction and also if the factors of increase of revenue, I would like to know.
Jun Sawada: Thank you very much. Regarding the first question of NTT DOCOMO, maybe you should answer this question?
Unidentified Company Representative: This is E, the President and CEO. Thank you very much for your question. Yes, you are correct. In the first year, there's not that much of a contribution to the profit level. However, including the cost reduction initiatives, the profit is as you have just described. And as Hiroi explained to you before, the operation cost itself, it's not just for the sales channel cost, but the network side operation cost, we are intending to thoroughly reduce that also. And from that, the cost reduction will be generated. And the side that will be showing an increase is the Smart Life business. We will put some money in investment. So the enterprise solution business growth is going to directly contribute to the profit. And also, the telecommunication service business recently, we have Aha Mall and the medium bucket services have been launched. And due to that, we are seeing a return of the customers in their 20s and 30s. So the revenue is increasing on that side. So it's not just the impact of the lowering the price, but we are seeing an increase in subscribers, which is contributing to the increase in the revenue. And therefore, with that, this fiscal year's synergy will be generated from this. So more than majority, the contribution will occur from next fiscal year onwards in terms of synergy. Okay. And regarding NTT DATA, synergy of 2025, the synergy is at ¥30 billion. At this point, we are not disclosing any more additional information than that -- they're not disclosing. So I cannot comment more than that. But from the holding company's perspective, this is just a starting point or the entrance or starting the integration. Finally, the enterprise side global business governance have unified as a group. This is the first time since then. So from there, the tangible and intangible synergies that we're not seeing at this point is going to increase and also the reputation is going to improve. And through that, we'll probably have a return, but we do not have the solid numbers. Therefore, there will be a furthermore, synergy coming forward is how the holdings look at this.
Daisaku Masuno: Thank you very much. Mr. E, I will have a follow-up question. I do understand the overall picture, but the synergy between DOCOMO and NTT Communications ¥50 billion or the video, ¥30 billion, there is no contribution of that synergy to the profit for the enterprise. There's a ¥50 billion increase in revenue, and that's going to be a ¥7 billion profit is what we are expecting. This is the overall enterprise business?
Unidentified Company Representative: Yes. Okay. So it's not just the incremental, but including the past two.
Daisaku Masuno: Okay. And my second question is regarding the impact of the share price. From that perspective, the mobile business price competition, what's going to happen to that is going to become a key. And each carrier is showing the decline in revenue. However, in each one of the individual brands, I believe that there is no additional decrease in the pricing. So the weighted average blended overall, it went down, but DOCOMO has the 100 gigabytes. And for the -- they are shifting over to a larger capacity or focusing on the data capacity. So the environment -- competitive environment, instead of having a decline in pricing for each individual brand, but having a more added value to each of the brand seems to be the direction heading from now onwards. So what is the sense of scale? And what is the situation?
Unidentified Company Representative: Well, we have rolled out the 5G network investing a lot. So DOCOMO is focusing on the fast 5G service. And how can we acquire the customers? One is to accelerate the network expansion and also the terminal devices respond. We come up with the device as a high-end one and the low-end one, which can use, which will function in a quick data transmission and the 5G network. And having the high and low end, then the younger generation can also use it. Market survey shows us that it's not the younger generation, the 20s or 30s, they do not necessarily have their own home router at home, spending ¥5,000 every month and having a home router, but having a adding ¥2,000 and being able to use 100 gigabit -- gigabytes, that is more convenient is what the younger generation think. And we do believe that such a market for large capacity does exist. So we are actually targeting that group in the market, too.
Daisaku Masuno: Thank you very much.
Unidentified Company Representative: Mr. Masuno, Thank you very much.
Natsuko Fujiki: Next question, please.
Operator: Next question is from Daiwa Securities, Ando-san. Mr. Ando please go ahead with your question.
Yoshio Ando: Thank you. Ando here. I hope you can hear me.
Jun Sawada: Yes, we hear you clearly.
Yoshio Ando: Thank you. I'd like to ask two questions, if I may. My first question is on the following point. It's about the global margin you are able to achieve this one year ahead of the schedule, you're able to achieve operating margin target. Now in the past, operating income margin and revenue, you set these targets, I believe, in the past. But now you have unified your target into one single target, which is operating income margin, which is global operating income margin. So at the time that you achieve this target of global operating income margin, are you going to shift your target once again to revenue going forward? Is there a possibility of changing your policy going forward? Should we prepare for any change in your target policy down the road? That's my first question.
Jun Sawada: Yes. Thank you for your question. At this moment, are we going to return to revenue-oriented target? Or are we going to add revenue-oriented target? That is not our plan right now because there was the impact of COVID-19. And of course, this year, we've had the impact of inflation as well as the war. And also foreign exchange of currency is now shifting to weekly trend. So at this juncture, are we going to set the revenue-linked target? I think it's probably not the case. As far as the timing, now is not the timing. And having said that, forgot which page it was, but NTT DATA -- yes, Page 10 shows you the forecast by company. NTT DATA is count of 108 billion, and it is considering an increase of ¥165.3 billion in terms of increased revenue. So DATA is doing very well. And also NTT DATA is very strong order remaining. So that being the case, maybe we need to review our medium-term plan. Maybe we -- under the new structure, under the new team, they may consider whether or not they should consider revenue as part of the plan going forward.
Yoshio Ando: My second question relates to the capital expenditure, CapEx. Taking a look at the situation in this fiscal year, I think there seems to be a slight increase in your CapEx. That is my understanding. How should we consider that? What are the factors that are behind the increase in CapEx this time around? And also, what is the medium-term trend that we should be mindful of when it comes to CapEx?
Jun Sawada: Yes. Thank you. As far as the holding company is concerned, yes, real estate and data centers, these are the drivers behind the increase in CapEx. But this is demand linked. There's strong intent on the part of the business players to provide these services. So we have that many projects. As far as the NTT Holding Company is concerned, we want to work with financial partners and take this off balance sheet. We want to try to -- we want to expand by, but then reduce the amount of investment that is required on our part. But for the main telecom part is concerned, I'm sure that this can be covered by DOCOMO colleagues, but DOCOMO is really emphasizing cash reinvestment. And conversely, they have really contained the non-5G-related investment in other areas. As for NTT East and West, they are very lean when it comes to CapEx. So that is the situation. So at this stage, it's really stated data centers. These are more conspicuous. But also DOCOMO is making investments so that they can expand our business as well. There's going to be that requirement naturally. So as far as the trend of investment is concerned, focus is on the new areas, focus is on investment in growth areas and areas that will generate profit.
Unidentified Company Representative: If I could add -- sorry, if I could jump in...
Yoshio Ando: Sorry, please go on.
Unidentified Company Representative: Okay. This is E here. Let me -- yes, I agree with what I just mentioned. I think network-related investment, we will continue that over the medium term. Network communications. They are building custom networks because of the orders they receive. But that is not going to increase significantly. So DOCOMO's telecommunication facilities and other orders received, I think the medium-term CapEx can remain flat. So what this increase will be investment for the future. For example, financial payment system related investment or excel related investment, excel related software. Those type of investments will be required in order to grow in the future. So for this fiscal year, next fiscal year, over the next two years, I think we need to make robust investment in those areas.
Yoshio Ando: When we take a look at the breakdown of CapEx, the global business segment seems to be increasing. That's how it seems. So that's primarily data centers. Is that the case? And going forward, this is slightly increase. That is because of the robust business. Is that how we should interpret these numbers?
Akira Shimada: This is Shimada here. As far as the data centers are concerned, yes, data center investment is increasing in the Global Business segment. That is true. In fiscal year '21, ¥175 billion was invested for data centers. But in fiscal year 2022, the number is ¥180 billion as a plan. When we include the third parties, in fiscal year 2020, it was ¥180 billion investment. In '22, it's ¥200 billion. If we include these third parties, because we procured from third parties ¥120 billion. So over ¥300 billion investment will be made. So the growth in the marketplace for data centers, it's about 30%, it's 30%, more than 30% growth in the market. So there's that robust demand out there. So for the time being, this level of investment is going to be required. It will discontinue over the next couple of years. We have to see the prevailing market situation.
Yoshio Ando: Okay, thank you.
Operator: Thank you very much, Mr. Ando. Now we would like to take the next question -- next, from Credit Suisse Securities, Mr. Eguchi. Please go ahead.
Hiroyasu Eguchi: This is Eguchi from Credit Suisse. Can you hear me?
Unidentified Company Representative: Yes, we can hear you clearly.
Hiroyasu Eguchi: Thank you very much. Regarding NTT Ltd., I have two questions. The first question is regarding the first quarter's limited sales. Probably there's a yen depreciation effect incorporated. But to what extent is that impact incorporated? And also regarding the semiconductor-related reason, there is some order backlog. But how much of that backlog did you have? I just wanted to know this -- how much it grows?
Unidentified Company Representative: For limited in the fourth quarter, this is related to the data center explanation given to you before, we have sold one. And that is recorded in the fourth quarter, and that was about ¥10 billion, and that is increasing that part. And as for backlog, order backlog is ¥130 billion. Eguchi-san does that satisfy your question?
Hiroyasu Eguchi: And this time, we said ¥10 billion, is that a onetime recording? Or next fiscal year onwards? I have heard that there's a strong demand for data center, but is such a situation going to continue? And also, can you talk about the semiconductor?
Unidentified Company Representative: First of all, the ¥10 billion, the situation, it's not that we sold everything because the situation satisfied. It's that we were working on the off-balancing, so we sold it. So it is a onetime for this time. But this type of sales is going to continue moving forward. As Mr. Shimada mentioned before, with ¥300 billion, the third party capital will be ¥120 billion. This scheme will be what I was talking about moving forward. And as for the semiconductor, the Cisco routers, selling that to the customer, that type of order backlog is what we are talking about. So of course, FY '22, well, this fiscal year, also such a backlog will remain, but we will resolve this backlog, but once again, create a backlog. Probably, this is not going to reach ¥130 billion for FY '22. It will be lower or smaller than that.
Hiroyasu Eguchi: Okay. If that is so, then the new fiscal years NTT Ltd.'s increase in profit, the structural reform positive effect is the majority and the product mix or the actual profitability improve. How are those incorporated?
Unidentified Company Representative: It's 8
Hiroyasu Eguchi: Thank you very much. My second question is regarding the NTT Ltd. incorporation to NTT DATA. I don't know if Mr. Shimada going to answer it, or I don't know if I should ask Mr. Shimada, but when I listen about your explanation of the structural reform, it has not completed yet. And you have done things in order to improve the profitability is my understanding. But NTT Ltd. profitability, there's a high value-added services where you have switched the direction towards. But still, what is lacking? And in order for you to compete in the global arena, what do you need? And do you need to improve other areas than improving the fixed cost? What are the areas that you need to further change is what I would like you, Mr. Sawada to explain.
Jun Sawada: Mr. Shimada was preparing to answer that question, but I would like to hear a word on, of course, Mr. Shimada, too. But I myself, what I think is that NTT Ltd., shifting over to a higher profitability service, they are still in the midway of that. And the high revenue services, managed services or security services or edge to cloud type of advanced cloud type of services. But that changes every day, meaning that one after another, new technology, new services need to be incorporated, and we need to change ourselves to enable that in our process model. And the regional -- when you think about the regional sales activities of Limited, in order to sell a certain product, there are professionals. But when the new product comes in, then a structural reform will be unnecessary. Again, I think that type of cycle is going to continue is what I mean. And Mr. Eguchi, as you have explained, the areas of the fixed costs will be reducing forward is our own DX cost. And the IT, we will be providing edge to cloud to the customers, but we will provide that to ourselves, too, in order to enhance our own capabilities. Mr. Shimada, do you have something else?
Akira Shimada: Well, for the foreseeable future, the profit growth will be generated from data center and managed service. If you look at the appendix material of the financial results, data center is the 38% of revenue growth and managed service is 23% growth. And from here, there are returns. And that area is going to be the growth area. And for NTT Ltd., what they're newly working on is the private 5G -- well turning the whole factory into complete private 5G type of product. It has already started. So as Mr. Sawada mentioned, the next new profit source, we need to create such a thing simultaneously in parallel. Of course, cost reduction are unprofitable business areas. I did mention this in the third quarter, a withdrawal from the unprofitable areas is something that we would like to do during FY 2022. So the profitable area and withdrawing from the unprofitable business, those are the rationalization and streamlining that we would like to do.
Hiroyasu Eguchi: Thank you very much.
Jun Sawada: Thank you very much Mr. Eguchi.
Natsuko Fujiki: Next question, please.
Operator: Next question is from Mizuho Securities. Mr. Hori, the floor is yours. Hori-san please.
Yusuke Hori: Thank you. My name is Hori from Mizuho Securities. I'd like to ask just one question, if I may. I want to ask about NTT Ltd. and NTT DATA and the companies of the overseas business between these two companies. So let's take a look at the scheme. Over the short term, it seems that this is disadvantageous to the shareholders of NTT DATA, but more advantageous for NTT. But you said that this is simply a starting point. You also talked about IOWN. And you mentioned that the overseas company should be promoting IOWN. So if that is the case, DATA will own 55%, NTT will own 45% of the new overseas operating company. This ratio, is this close to the final structure, the ultimate structure? Or is this ownership structure subject to change going forward? What about the division of roles? In the slide presentation, on Monday, application and platform will be done by data unlimited, and the base technology will be held by R&D team of NTT Holding Company and the R&D team. If that's the case, maybe the equity ratio for the new overseas operating company could change as a result. What are your thoughts? Is this the ultimate structure? Or is this subject to change? In line with the progress in the structural transformation, can this ownership structure for the new operating company for Global Business change over time?
Jun Sawada: Yes. Thank you for your question. We have -- actually had a proposal where DATA would have 100%. We have 55% to 45% structure this time around. We want to support the overseas global service strategy that NTT DATA would like to implement. So if we have new products or should their acquisition down the road, or should the market environment significantly changed, maybe I think we have to consider whether or not these numbers should remain the same. That is our thinking.
Yusuke Hori: I see. Well, from the perspective of NTT DATA, well, DATA at last has to be proposing such as transformation of global business over the past. Another in a profitable situation, they're able to generate very profitable profit right now. And this owes to the efforts made by NTT DATA. NTT DATA made efforts to improve the profitability. But then in this new operating -- in this new global business -- global operating company, 45% of the company's profit will be taken away by NTT Holding company. So once the profit structure -- once the profit level expands, maybe DATA would want to expand their equity ratio. If that request were to come from DATA, how does NTT Holding company intend to respond to that request?
Jun Sawada: Well, it depends on the circumstances at the time if that -- if the request is reasonable, we may consider. But conversely, we are also -- we also have shareholders of our own. It means that our take of the profit will be coming down if the structure change. So if that should have a negative impact on the EPS, then that's a policy which will be difficult for us to take. So both companies are listed. NTT DATA's largest shareholder is actually the holding company. We are the largest shareholder for NTT DATA. So we should not use the term minority shareholders, but there are other shareholders as well. We also have other shareholders of our own.
Yusuke Hori: So how will the situation be perceived by other shareholders?
Jun Sawada: I think both sides need to consider and make their respective decisions accordingly. Also one other point, as for NTT DATA, at the time of the current medium-term plan, they have set the target of operating income and the considering possible target down the road. But at this juncture, I think NTT Ltd., by consolidating NTT Ltd., their profit revenue will improve. That is the situation for NTT DATA. So as you mentioned, Mr. Hori, at the outset, it's not -- the events are not skewed toward NTT holding company. I think that is not how NTT DATA's situation either.
Yusuke Hori: I see. Thank you. That is very clear. Thank you very much.
Operator: Thank you very much Mr. Hori. We would like to take on the next question. Next, from Okasan Security, Okumura-san. Okumura-san, please go ahead.
Yusuke Okumura: Thank you very much. I am Okumura from Okasan Securities. Can you hear me?
Jun Sawada: Yes, we can hear you.
Yusuke Okumura: Thank you very much. I have two questions. The first is related to NTT DOCOMO. Non-consolidated DOCOMO, it seems that they're increasing their profit. The mobile customer base has expanded. But I would like to ask you about the outlook and forecast. At the finished fiscal year, with the -- due to the OC, and we cannot do an apple-to-apple comparison, but with that included, were you able to expand the customer base? And with the customer base expansion this time, are you also incorporating the net adds in the forecast that you have this time?
Unidentified Company Representative: This is E speaking. Actually, as OC and Mobile, the lower capacity, lower price menu was from last October onwards or in reality from December, so we were a bit late. So that part, customer base recovery was falling a bit behind. But compared to the year before, MNP has been improving, converting into numbers against the previous year, about ¥20 billion recovery shown on the revenue side. And this fiscal year, furthermore, we are going to enhance it more. So -- and then positive side. So if we increase the power of the medium bucket and the smaller bucket, it will totally become into the positive side. And that's what we were aiming for the long time, and we believe it is going to be such, we'll be okay.
Yusuke Okumura: Okay. Then having that as a premise, the competitors, in a way, are sacrificing their profit for a short term, but still going after subscribers. But for you, with the service lineup, the -- with this current ones, you can expand your customer base? Or are you thinking that you need to come up with some new initiatives to be launched?
Unidentified Company Representative: Well, in that sense, the new menu, our new price plan, we're not to think about that, we're not at that stage yet. We are going to continue the medium bucket. We have the ahamo Oomori type of new option added to that. The higher ARPU menu customer base is what we would like to increase. So the lower price type of ARPU, lower type of customer, we can't -- we shouldn't spend the cost to acquire the low-end customers. So based on this way of thinking, we are putting our efforts in the marketing side instead of launching more new menus out into the market.
Yusuke Okumura: The next question, regarding IOWN, I would like to ask Mr. Sawada. Sorry, it's qualitative. But this time, you are nearly establishing the product design center and you will be developing the services from now onwards. From -- till now, when you think about the monetization of IOWN, what are the areas that you think you can monetize? Or is there something that you are already thinking of in terms of that area? Can you share with us?
Jun Sawada: Thank you very much. From last year, we started a trial. And this year, NTT East, SIMO, even though the performers are located in separate locations, simultaneously, they can perform the music. So the latency is very short service. And that is comprised by all photonics network. So it's not digitalized, but the video information is transmitted, not being digitalized. And I want that to be made a dedication network. And so the low latency dedication network, the electric signal will be applied. And through that, a more secured backbone or service will be able to provide the quantum dedicated -- quantum communications dedicated network. IOWN's optical fibers advanced service can -- is such a thing. And also FY 2025, we have the World Expo. So even though we say that it's only two years plus from now, and at that point, the disaggregated models service within the data center, we are thinking whether we will be able to prepare that or not, and we are working on it. Of course, the photonic electronics convergent type of technology will be applied there. Therefore, that type of a full scale type of a tangible will occur in the FY '24, '25 period. And also, as I have explained, we are looking at fix. The optical transmission method, and this is one of the IOWN technology. We'll be using that in this space. And if possible, next year or two years from now, we would like to commercialize it. And we are considering it right now.
Yusuke Okumura: Thank you very much for the detailed explanation. That’s all from my side.
Jun Sawada: Mr. Okumura, thank you very much.
Natsuko Fujiki: Next question, please.
Operator: Next question is from Ishino-san from Tokai Tokyo Center.
Masahiko Ishino: Thank you very much. My name is Ishino from Tokai Tokyo Center. I would like to ask this question, if I may. So DOCOMO and NEC and AWS are now going -- have started public cloud testing since March. So by the end of the year, are you able to achieve results of these tests? Do you have such -- I think you have such plans? But what about the capital investment? Once these tests are successful, will this have an impact on our CapEx plan going forward? That's my first question. I would appreciate your response. And also, if I -- should I go on to my second question as well?
Unidentified Company Representative: Can we take questions one at a time, please.
Masahiko Ishino: Okay, it's one at a time.
Takashi Hiroi: Thank you. This is Hiroi here. I'm not a technical expert. So I'm not well versed. But having said that, AT&T recently is now trying to sell their core network to Azure, Microsoft. So with regard to core network, how are they going to incorporate into those public network? I think that has emerged as a very hot topic. In the mobile industry, it's a very hot issue right now in this industry. So the start to consolidate based on the economy of scale. AWS and public cloud players are one such option. Now they consider a lot of user information. So processing that information at the edge, if that is the case, then you don't need AWS and other public cloud functions. There's no -- it's really -- I think there's still many discussions among the mobile industries, whether which of these options are best. So we want to gain knowledge and information through this testing. Now we're not sure at what timing the results can be achieved through this test. But with regard to the impact on the capital investment, this is something that we need to consider down the road. That's my response.
Masahiko Ishino: Okay, thank you very much for that. My second question is this, as this relates to the previous question as well, it's about IOWN. So with the photonics electronics convergence, you're able to create data centers through photonic transmission route. If that environment is achieved, then the capital investment required will change. That's about data center investment increasing 30% per annum. I think we're seeing very excessive investment competition. If this type of excessive competition continues, then we're going to have such capital-intensive situation. At the end of the day, although we're talking about zero carbon in our society, you have players that are using so much energy. So that risk is there. So therefore, data center project within IOWN can translate into cost reduction, I suppose. So against this backdrop, if you have already carried out the calculation, what will happen to the centers? How much customers can you achieve if you have photonics for data centers compared to with the current data centers and silicon-based data centers? How much cost can you achieve? And what challenges remain? I think this is a major game-changing technology. So to the extent possible, we can share with us what you see as the possibility?
Jun Sawada: Thank you very much. This is Sawada here. So with regard to photonics electronic convergence, what this entails is within the ELS package, memories will be connected to the LSI next door. And Photonics Electron -- Photonics will be utilized. That is what photonics electronics convergence is all about. Now photonic semiconductor is using photonics to complete semiconductors. So power consumption is supposed to be 100. This is -- this involves photonics semiconductors. This is something for 2030 onwards. In the case of photonic electronic convergence power consumption, it will be reduced to 0.1, and this percentage will improve. So service utilize technology or data centers utilize this technology need to be built. And also you need software that can run on top of such technology. So to be quite candid, we're not sure how much cost can be reduced. We have not been able to calculate how much cost reduction we can achieve because we are not yet in a juncture where you create such a system, per se. So what this means is that it's difficult to discuss how much CapEx will be involved. But as far as the CapEx that we have right now, this is geared toward the power percentage to cover data centers. What IOWN is looking for is server systems that incorporate into the data centers. So as far as we are concerned, this is not double investment. This is not a duplication investment for NTT. So we want to work together with partners, and we're trying to build services such as this. This has to be done from the semiconductor level. So that's what we're trying to implement together with our partners. So right now, we're not able to calculate the cost and effect at this juncture. We're not yet at that juncture.
Masahiko Ishino: I see. If that is the case, so from 2025, the second stage will begin. And in 2030, you'll be able to switch to photonic semiconductors. So we're talking about five years plan. So within the next 10 years, can we expect major structural change as a result of the progress in this technology? So inclusive of how you things may change over the 10 years' time, is my understanding correct? Or wrong?
Jun Sawada: Yes, that is how we see the situation. So yes, you're right.
Masahiko Ishino: Okay. Thank you very much.
Natsuko Fujiki: Mr. Ishino, thank you very much. With the next question, we will be answering all the questions that we have received. So we would like to take on the next question.
Operator: Morgan Stanley MUFG Securities. Mr. Tsusaka, please go ahead with your question.
Tetsuro Tsusaka: This is Tsusaka. First of all, the overall management design, so to speak, or the design of the profit, moving forward, what kind of a company will NTT become is what I would like to know. In the last one year, about ¥100 billion of mobile revenue decline has occurred. But at the same time, the global business and the solution business, you have surely established a profit. And this fiscal year, the profits increased. The contributing factors, it seems that the majority is coming from the solution side. And from next fiscal year onwards, the scenario of the ARPU are largely increasing. At this point, it's probably difficult to come up with because you don't know what the competitive environment is going to be. If that is so, the profit design for the overall NTT seems that the consumer part is maintaining the status quo or try to not make a loss or have a loss generated, but more getting closer to or focusing more on the enterprise side of the business, it seems that in the last several years. From the management perspective, I believe we would like to increase both sides, but looking at the last two years, it seems that the focus is on -- is as such. But making more investment and increasing the profit, what are those areas? Or is there a particular area that you would like us to focus on? Or you would like to focus on? Can you share that if such a thing does exist?
Jun Sawada: Thank you very much. This is Sawada speaking. As you have pointed out, the consumer side of the business, well, since the enterprise is stronger, but the consumers of that, but more than consumer, I think you're talking about telecommunication services. In DOCOMO's perspective, finance services, financial services or the so-called smart life business area, the applications or the personal solutions type of service, and next time, the XR business will be expanded. So the handset or the devices included in that area, the IOWN element can be incorporated. So consumer in sourcing is flat, but the telecommunications consumers will be flat. And the Smart Life business area, including the Global Business will increase. And in order to achieve that, we will invest and acquire and expand this business. That's one perspective. And for the enterprise, for the global enterprise, limited and DATA will be integrated. And including the edge to cloud technology, this is an area that still has room for growth. So it will require investment. From midterm to long-term, the devices that we generate from the IR technology and the systems that will -- that the technology is embedded and the software's that will use those devices, to what extent can we prepare all that? Whether we'll be able to do that or not is going to determine whether we'll be able to expand the business or not. Shimada-san, anything to say?
Akira Shimada: For the foreseeable -- near foreseeable future, maybe this is better that you, Mr. Sawada answers, but there's a Smart Life business area and the enterprise business area, improving the -- and increasing the profit will be the base. The consumer business side, as Sawada, the President and CEO, mentioned. In the telecommunications business side, stacking up, the profit further is quite of a hard challenge to take on. Therefore, on the enterprise size, how much can we increase and expand that business is going to be the challenge we need to take on for the next year or two.
Tetsuro Tsusaka: So on the consumer side, the Smart Life business from that perspective, there are a variety of our businesses, is what I think. And the Internet type of companies, there are companies that specialize in that area, and there's quite a strong competitor out there. And NTT DOCOMO's Smart Life business or new initiatives, compared to the existing strong players, and these areas are able to differentiate themselves if such a thing does exist? Can you share that with me?
Unidentified Company Representative: This is E speaking. Thank you very much for a difficult question. Yes, as you have rightly pointed out, our competitors, if I may name the company named SoftBank, they have an e-commerce platform base as Yahoo!. They have an EC platform, meaning that they have a cash cow platform, Rakuten as well, but we don't have such a thing. So the general consumer type of business, maybe we cannot do such a thing, but we aim for the more niche market, like pharmaceutical drugs in the medical and health care area, not just the ethic -- not selling just the pharmaceutical drugs but have the clinical checkup or the -- link that with the personal health data, having such added values. As the product sells, we will sell the drug products, pharmaceutical products. If we try to do the same thing, that's not -- that doesn't have a meaning, but it's a more reasonable if we team up with a partner that specializes in those areas. So the 87 million DOCOMO's d POINT members is the base for us. And what we're expanding right now is for the enterprise, we have the business dPOINT custom platform. We have only about 4 million at this point, but we will expand that. We will link an ID to our customers. And through that, their purchase behavior and such data can be collected and can be analyzed, and then we can launch advertisement, specific advertisement store that -- or we can use that data for product development. So we will focus on such added value part. And for the competitors, they don't disclose such a customer DATA or make it openly available. They're using them on their own, but we are actually doing the opposite to the customer. We will create the virtual customer database for our customers. And we are actively working on providing such service to our customers. So the majority of the revenue will be like an advertisement revenue model.
Tetsuro Tsusaka: Thank you very much. And the last question is that DOCOMO experienced a ¥100 billion decline in revenue. However, we'll continue to increase the profit. And to do so, I'm sure there were very measures that were devised. This year, ¥100 billion decline next fiscal year, I'm just rounding up the numbers, but still, they will increase the profit. It seems that the way of -- they are conducting the business, even such a situation, they are recovering their competitiveness. And so when we think from that perspective, to the conventional way of doing business, by adding some change, it seems that they are able to conduct a business that are more -- that is more efficient and more effective and good profitability. Looking at the overall NTT Group, the improvement or Kaizen that DOCOMO achieved, meaning -- or the optimization of the way they conduct business, is there another organization within NTT Group that has such an opportunity? Or has all of the group companies done what they could do?
Unidentified Company Representative: I think there's still room for all the group companies to do a similar thing as DOCOMO. As you have mentioned, DOCOMO has put their whole effort. The mindset or the structure or the profit-generating structure is changing. But including the global side, how are they going to conduct their business moving forward and NTT East and West is changing to an increase in both revenue and profit. Just providing in one region, but also going into revitalizing the local economy, maybe they can go into that area or the system side or the DX area. Their processes are still old or obsolete and they are fiber-centric, each company, many of those countries are and labor-centric, too. So I believe 100,000, we conducted a survey for to 100,000 employees. And we will be able to understand that there are various issues that we need to understand, that there are still various issues that we need to tackle and take up on this challenge. What do you think, Mr. Shimada?
Akira Shimada: Well, for NTT East and West part, as I already shared with you, up until now, they have been accumulating the cost reduction efforts. And the process -- majority of the process is conducted by people. And it probably will take several years still. However, automating that type of work, if we take it up to that stage, there is still quite of a room for improvement. Therefore, in that sense, the areas that the efficiency will improve. There are still areas remaining in DOCOMO and also remaining in NTT East and West is our understanding.
Jun Sawada: Sorry, Tsusaka-san. Mr. E, do you have something to add? I thought that you were complementing us and listening to your comments. Thank you very much.
Unidentified Company Representative: As you have pointed out, we have to change the mindset quite a bit, meaning that at what timing are we going to shift the conventional way of thinking. And we kind of did a radical treatment to the organization. And of course, I'm sure there are some distractions towards me by doing that. But this fiscal year, all of the fruits can be picked of what we've been doing. I think it's just the thing that what could have been done has not been done until now. It's not that we're doing something that is impossible. They just had room saying that they didn't have -- they still were able to be in a good situation without doing things. But just the cost reduction alone is not sufficient. What does change mean? The management needs to thoroughly convey that need to have a specific image, ahamo Oomori is a good example. Buying the service only on online, it's the opinion like, are you trying to meet the DOCOMO shops go bankrupt? But the DOCOMO shops also think we can't stay as like this, not doing anything. We have to do something else, too. So this like the fire, DOCOMO has many forward-looking employees. And once we give them one nudge and push, they will move forward. And the rest I would like to leave it up to Shimada-san.
Tetsuro Tsusaka: Thank you very much.
Jun Sawada: Mr. Tsusaka, thank you very much.
Natsuko Fujiki: We have responded to all the questions. So with this, we'd like to conclude the presentation of the finance results for fiscal year 2021. Thank you for joining us today. Thank you very much.