Nippon Telegraph & Telephone Corp (NTTYY) Q1 2027 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 three 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 three 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. We will now move on to the Q&A session. We will accept questions from those who have registered in advance and are connected to the web conferencing system. If you have a question, please click the Raise Hand button on the web conferencing system. If you wish to cancel your question during the session, please click the raise hand button again. When we call on you, we will announce your company name and your name. After we ask you to unmute, please unmute yourself on the web conferencing system. After asking your question, please remain unmuted until we have finished answering. Now we will take your questions. Daiwa Securities, Tokunaga-san, please unmute yourself and ask your question, please. Hello, I am Tokunaga from Daiwa Securities. I have two questions. First is a very orthodox question, the progress of Q1. My view is that Docomo was quite good, so 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 Q1. 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, as already been informed, Dokomo no Ginkgo is now consolidated, so the sales and profit is recorded, and that is positively contributing to the result, 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 was sold to SREIT, 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, 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, and U.S. and Anode are also trending strongly. Thank you very much. So against the consensus, it is an upside of 10 billion yen, so the consensus and your internal forecast are not that different. Basically, it's a slight upside, a bit stronger than our forecast. So yes, you are right. Thank you very much. My second question is a rather vague question, but on a consolidated basis of the inflow and outflow of cash. Docomo, due to inflation, the tariff 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's 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 6G 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? Which areas do you want to focus on, or which areas are not so high priority? If you could give us an image. Thank you very much. From Q2 onward, Docomo FG 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 DEFCO, 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. AI-related business is dynamic now, so AI-related business will need to be strengthened, and that is very important from Q2 onward. In Q1, WinWire 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. Thank you very much. So roughly speaking, DOCOMO in Japan, you will generate cash and use it for data to invest overseas. Is that the right balance? DOCOMO, we have the economic 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's 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.

Thank you very much. Next, from SMBC NICO Securities, Mr. Kikuchi, please unmute and ask your question. This is Kikuchi speaking. Thank you very much. I have two 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 in the latter part, Docomo's smartphones 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 churn rate is also increasing, and maybe this is a special factor. But given this situation towards the second half, 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 10 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 would 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. Thank you very much. This is Sasaki speaking. 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 stopped providing the service, so that was a temporary impact. But basically, we're able to reduce the decline in subscribers, and MNP is increasing. And the July recent MNP was net positive, is what I heard. So up until now, it's steadily performing. And regarding the second half, as you said, there was a replacement timing last fiscal year, and we had that impact, but we are reviewing it once again. And therefore, at this point, we are able to have a control on the negative risks. Having said that, August onwards, the collaboration with the Docomo Financial Group is going to start in full scale. So, therefore, regarding this part, we have a positive expectation. 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 REIT. As you mentioned last year, we have established the REIT. So, we made the box. So, inside that box, our kind of data centers will be included. is what is thought looking at the market situation and as for the DEVCO currently including US and Europe we have started the preparation work so within the end of the fiscal year several projects will move forward and including the planned sales again we would like to surely secure that part thank you very much Thank you very much for a very clear answer. The second question, maybe there may be nothing that you can share at this point with us, but eye on. I believe that this fiscal year was the opportunity year for PEC 2, and that the Shimada-san 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 APEC-2, 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're able to share something, I would like to know about it. I myself assumed this current position in June, and with the key word ION, what kind of monetization 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 also, as you pointed out, the photonics, electronics, conversions, device type of products, and for improving energy efficiency, this 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 until now and the direction was not a mistake. And globally, what is starting to become necessary is this photonics-electronics convergence technology. And we also established an Ion Fund. We made an announcement the other day. And that type of new deep tech-related startup companies' discovery is also conducted in parallel. So including that, how can we utilize this photonics technology and establish an ecosystem globally is 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 would like to be able to explain that to you. So I'd like to receive the continuous understanding and support. Thank you very much. This concludes my question. Thank you very much.

Next, Nomura Securities. Masuno-san, please unmute yourself and ask your question. Masuno from Nomura Securities, thank you. So looking at the segments this time, the integrated ICT is solid. But on the other hand, global solution, Japan, you're enjoying profit in all segments, all areas. but overseas operating profit is $14.3 billion. So full year, you plan to exceed $200 billion, but excluding the gain on sale of data center, how can you achieve $200 billion from this current $14.14 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, and the profit grows dramatically towards Q4. That was the plan we had. So towards Q4, profit will grow. Q1, Q3 are low, but Q4 is much larger. And that has been our plan and our results so far. Since last year, one trend we see is IT services profit falls 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 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. Thank you very much. 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 how would 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 one-time temporary loss. The business itself is very strong. So from Q2 onward, we think confident, we're confident we can be positive year on year. So including smart life, the strong business, Tokomo can have a positive number. Thank you. So integrated ICT at the current pace will 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. METI, Multimodal Infrastructure, IMPRA Project. KDDI is making an investment for the integrated lab, but NTT has not made an investment. This is a national project, so we wanted NTT flags. NVIDIA, 140 megawatt GPU, 28,000, 14,000. and NVIDIA CPU Tramexa will be included. So for this national government, the 1 trillion yen project will be full with NVIDIA. So for this METI project, what is your stance or position as NTG? For Neutra, 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. This dedicated AI projects will emerge going forward. Noitra 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's 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. But one point about PECCPO, so this is a national project, it's a tax project, and so NECCPO switch will come in, and it's such a pity that that is happening. So how can you recover in CPO? Well, for PEC2, we are working with Broadcom and Acton and introducing this to hyperscalers. So we are now enhancing our activity on PEC2. PEC3 will be further down the road, but for the other PEC technology, we will aggressively move forward to stage a recovery. Thank you very much. I have high expectations.

Thank you very much. Are there any other questions? For those of you who have a question, please press raise hand button. Including those who have already asked the question, if there are any additional questions, please press raise hand button. Then Daiwa Securities, Mr. Tokunaga, please unmute and ask your question. Thank you very much for the second round. This is Tokunaga. I have only one question. Mr. Sasaki, it's been two months since you assumed your new position. Currently, if there's something that was different than what you've expected, or once you've assumed the position, you became more confident. Maybe it's a bit too early to ask, but at this point, your impressions, or if you have any aspirations, can you share that with us? Thank you very much. Well, from a comprehensive perspective, I would like to make my comments. Well, Docomo's network quality issues and also NTT East and West legacy business challenges are having various challenges on hand. On the other hand, when I look at NTT Group from the calm perspective, Well, in Tocomo, there's over 50 million customer touch points. And as a telecom carrier, we don't see anything like that around the world. We have the IT service engineers up by 200,000. And also for East and West, they have an extremely high trust from the regions. So when we think about these positive aspects, by combining these weapons, so to speak, providing a better service or improve the competitiveness, we still can do that. We still have room to do so, is what I think. And we have over 2,000 R&D engineers. So this outcome of the research, how can we use that in the business to turn that into business in a more effective way? I believe that this group can evolve more and more and develop more. So in that sense, the group-wide comprehensive capabilities, how can we actually show that and practice that? And how can we appeal that to the market and also generate solid outcomes is something that's going to become important moving forward. So at the same time, improving the competitiveness of individual companies and also improve the NTT group. Total competitiveness is where I would like to focus on. Well, up to now, NTT, for the last several years, the format of the group has been restructured, especially the holding company part. Are you going to further change it or are you going to further enhance the current format or the structure or the format or organizational structure is about how? So in the AI era, what kind of positioning are we going to acquire? That what part? We need to sort that out first. That is going to become important and necessary. And within the IE era, the way the IT services should be will change, and also the customer touchpoint is also going to change. So within that situation, how are we going to change our services? We need to determine that point and to think about that how part. I think that's going to be the order, and that's going to be important. Therefore, right now, this how part structure, how is that going to be? That type of a discussion, I think, is too early to have, is my current understanding. That is all. Thank you very much.

Thank you very much. Morgan Stanley, MEFG Securities, Tsuka-san, please unmute yourself and ask your question. This is Tsaka from Morgan Stanley. Can you hear me? Yes. Thank you. So my question is on investor communication, shareholders and investors and the potential shareholders. Your communication method with the shareholders and investors, can they remain unchanged? So that is my question. The world is changing very rapidly. in your medium-term plan, your growth driver is changing. So when you communicate with investors, what is appealing? It's important to prioritize your appeal point. On the other hand, looking at your financial results briefing format, the holding company followed by NTT Docomo, and lastly, the social implementation NTT data that is implementing various things societally is coming third. I think this has been decided in the past and has not changed. But now that the world and your business model are changing, so the way you communicate with investors need to change as well. And I mentioned this when you announced your full-year results to President Shimada. So this bureaucratic financial results briefing format is such a pity. So because you have this great growth and because you came from the global side, if you could share with us your views. Thank you very much. I will take in your valuable input and discuss internally and take the right step. Our growth strategy needs to be shown clearly to the investors. This is crucial. So how we generate cash and where we bet, which area we bet into the future. We will try to come up with the right format or scenario to be able to clearly explain that to you. So I ask you for your support. Thank you very much.

We have surpassed the scheduled time, so we'd like to consider the next question as the last question. BOFA Securities, Mr. Tanaka, please ask a question. This is Tanaka from BOFA. Thank you very much. One question. In the other business segment, the operating profit is $23.04 billion and the full year is $19 billion. So it is exceeding the plan. So urban solutions is steadily performing. But what is the negative factor at anode energy? Is there a plan that they're going to record an impairment loss? Are there any factors that are going to create a loss, or is it just simply you were too conservative? That is all. This is Nakamura, head of finance and accounting, speaking. Well, actually, in this first quarter, more than planned, but a lot of profit being recorded. We had a lot of sub-segments that did that. Urban Solutions, which is urban development, they have various real estates, and selling those could occur at any quarter. And in the first quarter, which is the residential sector, there were real estates sold, and that is pushing up the profit. So it seems that the progress in terms of the profit building is faster than expected, is this answering your question? That means that from the second quarter, well, if it's difficult to assume that zero profit is going to be generated. So no more thinking it will be four times of what it is right now, so your plan itself is too conservative. Well, in that sense of selling the real estate, it's not something that's recurring forever. It is just temporarily. So it's not simply four times it's going to become profit. I would like you to understand it that way. Well, that part, I do understand it was a temporary part, but then the other areas, if there's none like that, it's difficult to think that if none like that occurs, that the profit is not going to be generated. So to begin with, was the plan not good or no profit is going to be generated moving forward, apologies. I maybe didn't explain thoroughly. At the time of the plan, at the first quarter, have temporarily large profit being recorded. This is not going to continue to the latter quarters. The plans afterwards is quite a flat plan. So that part, you can multiply it by four. But the others, there may be slight ups. But if the business will progress as smoothly, there's a possibility that there may be some upside. But actually, not just the revenue and profit side, but on the cost side, at the first quarter, there's ups and downs in terms of the cost. So in that sense, expenses, maybe planned now, but it may not be used later in the latter part. So in that sense, you can think there will be ups and downs like that. Okay, understood. Thank you very much. Well, we have surpassed the scheduled time, so with this, I would like to conclude.