Nippon Telegraph & Telephone Corp (NTTYY) Q2 2027 Earnings Call Transcript

Thank you very much for taking the time to join us today, despite your busy schedule. We will now begin NTT Inc. financial results briefing for the six months ended September 30th, 2026. I am Akaishi from the IR office, and I will moderate today's session. First, let me introduce today's speakers. Shimada, representative member of the board, president and CEO. Sasaki, Representative Member of the Board, Senior Executive Vice President and CFO, Nakamura, Senior Vice President, Head of Finance and Accounting, Hattori, Senior Vice President, Head of Corporate Strategy Planning. These are the four speakers for today. Please note that this briefing is being live streamed. An on-demand webcast will be available at a later date. For materials related to the financial results, please refer to the presentation materials on our IR website. We will now move on to the Q&A session. We will mainly have a Q&A session today. We will take questions from participants in the room and from pre-registered participants connected through the web conferencing system. If you are attending in person and have a question, Please raise your hand. Our staff will bring you a microphone. If you are joining online, please click the raise hand button in the web conferencing system. If you wish to cancel your question, please click the raise hand button again. When we call on you, we will announce your company name and your name. When we ask you to unmute, please unmute yourself in the web conferencing system. After asking your question, please remain unmuted until we have finished answering. We will now take your questions. We will start with a question from the room.

So at the front row, on the right-hand side, please go ahead. Nominal Securities, my name is Masuno. I have two main questions. The first, the financial results, a number, well, each operating company is here. So as the NTT group overall, what are your thoughts regarding the AI strategy? By layer, the data center, NTT data will Put their efforts in. From the outside, physical AI, it seems that Docomo will have a strength in this business. And recently, as SAP announced, the Solving Cloud will be a holdings company taking the lead. Such a topic is raised. So in various areas, physical AI, Solving Cloud, and the service rollout related to AI overall. AI, what are you planning to do? Thank you. I would like you to elaborate on that. Thank you very much. Masuno-san, close to your thoughts is the honest response to your question. Sovereign AI cloud or The Frontier AI, I think we will have to bring it to Japan from the national security perspective. And I did briefly mention this at the press conference as well. The thing is... If we're going to bring Frontier AI to Japan, as a project, it's going to be a large-scale project. Of course, it will require a data center, and also we will need to comprise the inside of the center, and they will need the backhaul facilities to connect the data center. And, of course, with the United States, but also with countries other than the United States, We need the submarine cable to connect to those other countries as well. So as the overall project, basically, NTT data, because of the data centers and the submarine cables, they will be taking the lead. But for the other operating companies, NTT East and West will be involved. Docomo Business will be involved. So in that sense, as the whole group, we will have to move this forward. So in that sense, of course, the leader will I'm thinking of having entity data become the leader. But as a holding company, we have to coordinate the overall entity group. That's my understanding. So it's not just for the sovereign-related items, but in domestic Japan, to operate a data center, I did not mention it, but, for example, well, anode energy has to be involved for the power supply as well. Therefore, it is not a project that only one operating company can do it. Multiple companies within the groups will be involved in it. This is a request from my side, and as I have been saying conventionally, the individual operating companies will give the explanation. However, as for the whole entity group, how are you going to work on this business? And if there is some sort of a briefing session regarding this, that would be very appreciative. So if there is such an opportunity, I would like you to hold such a session. And as an extension of that point, as the Photonics Electronics Convergence Device, PEC, at the press conference, you said that FY28, PEC 3 launch will be as scheduled. However, this part as well, PEC 2, NVIDIA is entering, but PEC. Two, two, Marble came in and they made an acquisition and they already scheduled, announced a schedule. And therefore, recently, the full Mentum's acquisition was also announced. So, within the commercialization phase, it seems that the United States players are strong. For the pick three, For the optical technology, you're taking the lead. But for the PEC 3, what kind of strategy are you planning to take? It's not that we are doing things in order. It's like simultaneously PEC 2, PEC 3 are already moving forward. Thank you very much. As the finished product that can commercialize will be around 2028, including the mass production phase. As for PEC 3, towards the actual production, as recently announced, with the partners that we have announced, we will be combining those members to do that. And through this, if we cannot have this proper partnership, the actual mass production will not be realized. Therefore, it's not that we're going to think about PEC 3 when PEC 2 is commercialized. But currently, PEC 3 is moving forward in parallel as PEC 2 is how I'd like you to think about it. And the thing is... The customers' individual actual names. Of course, when the timing comes that I can actually disclose that I will. But right now, it's not the timing to disclose them. So apologies for that. But technology-wise, we're picked too. The competitors is superior. Such a thing is not the case. And also... The customers that will have the delivery, they're not going to just receive the delivery from one manufacturer. At least two or three deliveries or deliveries from three suppliers is necessary because they only have one supplier. It will be limiting their supply chain. So there is a possibility they'll think about the second or the third supplier. So it's not a business that only one player will dominate everything.

So in that sense, of

course, we want to become the number one share provider. But as a possibility, we may become the second or the third. However, within the selection of the customer side, we will always be in there. Thank you. Lastly, just briefly, the integrated ICT seems good, but the The data business, the excluding the data center seems to be a bit lower, but it's good. But towards the second half, what are your views? Well, maybe I should ask the individual operating companies. Regarding this fiscal year, The third quarter, at such a timing, there'll be more that I can share with you, but it's just that at this timing, at this juncture, I cannot share with you many things, and that is due to the relationships that we have with our customers. So for the specifics... Probably around the third quarter timing regarding the global solutions business segment, I will be able to share more information with you. Apologies for that. Sorry that it's kind of a vague way of expressing things. But just going back to what was said regarding the overview of the AI strategy. And Sasaki-san is taking the lead. Sasaki-san, the executive senior vice president, is taking the lead. So I'd like to hear from him as well. Well, regarding the AI strategy, it is an extremely important business domain, is my understanding, as you have pointed out, as a whole group in various ways. There are individual dissemination of information. So as you have correctly pointed out, in a total perspective, what kind of strategy are we taking? It's difficult to see. We do understand that. So in terms of the monetization of the business, well, there are three key points. The first is that as a customer, we'll have the hyperscalers or LLM players from them, we receive payment. And that's, for example, the data center business, or depending on the situation, it will be a submarine cable type of business. By each type of business or channel, we'll receive money. The second point is that the so-called enterprise customers or corporate customers from Docomo, we receive money from the consumers or the end users. We need to work on that point as well. And the third is as an infrastructure. A player, the AI. Infrastructure or platform, how are we going to build that? We will be receiving the subsidy in phases. So as an infrastructure, how should we work on that? There are three key point perspectives for this. For example, as I mentioned at the second point, receiving the payment or money from the end user. So, for enterprise customers, Docomo business entity data. For consumers, there's entity Docomo. They can thoroughly do the business. And also, towards the hyperscalers or LLM players, mainly entity data will roll out the business globally, centering on the data center. East and West will do their business as well. So towards the content, what kind of investment will be made? So it will be the allocation of the investments. The cash that we have right now, though it is limited, that cash towards the future at. What timing will the business monetize that scenario? And right now, where should we make the investment? We are working on actually linking these scenarios together. So if you can give us a little bit more time, we'll be able to give you the full picture. Thank you very much. Please do so. So, NTT as a whole, towards the AI strategy, how much investment is going to be made? Everybody wants to know that information, so please do so. Thank you.

Thank you very much.

Next. Which was the left, the person wearing a blue shirt. Please go ahead. Thank you. I have two questions. There's been an upward provision, although the amount is small. Three years in a row, there's been a decline in performance, and it seems as though you're hitting bottom, and it seems as though there's an upturn, a turnaround. And the 200 billion yen profit decline is taking place. And in May, By 2030, profit plan you announced. And five years is a long period of time, I thought, at that time. But six months have passed, and it's only six months since May. But short term, next fiscal year, what's going to happen? I do hope for recovery next fiscal year. And in two years' time, not in five years' time, but in about two years' time, as soon as possible. It may be difficult to recover 200 billion yen worth of profit, but we would like you to recover as soon as possible. And it's only six months since May, and you may not have a clear picture, but towards next fiscal year, how do you intend to accumulate profit? That's the first question. I would like to call upon Docomo to explain later on in their session, but basically, consumer communications this fiscal year, we think this business is hitting bottom, and we are expecting a turnaround this fiscal year. That is what we expect, and towards next fiscal year. What specifically will be the plan? In the second half, co-creation, the competitive environment in the second half is going to be very important. And the first half, MNP, that's with a net positive inflow. Is competition going to subside? Is there going to be more moderate competition? We are positive, and Lactan, I think, is also positive, and there are some companies that have not been able to win, and those companies that are not winning, how will they respond? In the second half, in other words, we have to wait and see how the market develops. Last year, as we mentioned, we spent a lot on sales promotion. We spent a large amount of sales promotion expense. We don't think the situation will be much more than last year, but we have to monitor closely how the market developed in the second half, and based on that, we have to prepare our plan. Overall, We think there's an upward trend, and bearing in this mind, we would like to prepare our plan, factoring an upward trend. Please. Maybe not as much as 10 percent profit increase, but we would like you to make your utmost effort. And my second question, the net profit, the bottom line, I am worried about that, and the stock market as a whole is worried that there's increase in interest rate and data center investment. There's going to be some data center investment continuing and When you announced your first quarter results and Mitsusaki announced a pipeline, and there might be some M&A moving, and what is your financial strategy going forward? Last year and the year before, when this point was discussed, you shifted balance from a variable interest rate to a fixed rate. And bearing in mind the current situation, And one option might be capital recycling. And you might try to find the best balance between variable interest rate and the fixed balance interest rate. And there might be also funding in Japan as well as overseas. What is your financial strategy? And you may not be able to commit to a specific amount. But how are you going to minimize the interest expense? Hopefully, I would like to hear a number as to how much interest expense you wish to minimise. This is Nakamura, responsible for finance. I would like to respond. Market interest rate is increasing, and everyone in the stock market is concerned about this, and all companies in that sense have the same concern. And, Mr. Kikuchi, as you just mentioned, including overseas, in the case of NTT, when it comes to interest rate, we are gearing towards fixed interest rate, 80 percent fixed interest rate versus variable interest rate. And the current interest rate hike environment may not have an immediate impact on our company. The duration is 5 to 10 years. And during this time, operating profit that we would like to increase as much as possible and respond to the current interest rate, the high environment. And we have to make sure and the control so that there's no increase in interest-bearing debt. And as we mentioned, our minimum management strategy, our main business, we want to maximize the profit from our main business. And those assets that we think are necessary, we would like to dispose of, and we have to revisit our business portfolio, and we have to control debt or liability control, and we want to control interest expense and prevent it from going up substantially. And interest rate hike has already factored into our plan. And the current market is developing as expected. And this is factored into this current net profit situation. And next year as well as the year after the next BOJ is increasing interest rate. And overseas as well, there might be a further increase in interest rate. And even if that happens, we should be able to endure interest bearing debt and If the multiple we are committing to, and we are not intending to change that substantially. So please rest assured in that regard, and that is our current situation. Data center business. For that business, we need a large amount of cash. Basically, our own investment. We have a ceiling, maximum amount of our own investment that we intend to make. And as we've been mentioning from a long time ago, about 500 billion yen is the level we have in mind. And besides that, we've started Devco and Third-party capital we want to deploy in initial stage projects. But if we do too much of that, we will not be able to enjoy sufficient return. But probably AI data center, the current pace of AI data center development. Are we really able to continue the development of AI data centers in this space? We have to thoroughly think about that part as well. And at least the hyperscalers with whom we've been doing business from before, over the long term, they have a long-term plan. So as a project, we have to be selective. Thank you. In the bubble kind of environment, we should be able to enjoy stable growth by being selective. And as I mentioned before, M&A that we had in mind before, digital-related M&A that we had in mind before, we have frozen this plan at the moment because there's been a sea change in the current AI environment, and resource allocation, allocating resources to this kind of area, we have frozen this plan for the moment. Then, by the end of this fiscal year, there is no M&A. Super-large M&As, we will probably not have any understood. Thank you. That's it.

Thank you very much. Next, from the center row, but the front, center front row, please go ahead. Daiwa Securities, my name is Tokunaga. I have two questions. The first question is like a follow-up question to Mr. Masuno. It's related to group strategy towards AI. Like you have the Anode Energy, which is an energy company. Therefore, when other companies build or construct AI data centers, there's an issue of the grid for power supply. But if you go right now, you'll be able to reduce the dependency on the grid, and I think it's possible to rapidly expand the data center construction. So in that sense, node energy and AI data centers relationship, or from what timing will you be utilizing node energy in full scale? That's my first question. Thank you very much. As you have mentioned right now, in the regional areas or rural areas, how are we going to bring data centers? I think that is extremely important because the hyperscalers basically They want 50 kilometers or 60 kilometers of proximity of IX, the center. So bringing the data centers to a regional rural area, they don't have that in mind. So let's say that Even though they relaxed that rule, maybe it's about 20 kilometers. But what is starting to change, on the other hand, is that the AI operators, like they will use APN All Photonics Network, the delay or the latency can be reduced. They're starting to recognize that. Therefore, The new type of operators that are recognizing that we can actually disperse them into the regional areas, and because there are certain areas, they have a surplus of electricity supplies, so guiding them to there is one way of doing things. And anodes, electricity resources. It's not that they have a large capacity of it or quantity of it. We are in the construction phase. So, from 2030 onwards, And it seems that right now towards renewable energy, the instability of renewable energy, there are voices as such. But I think it is the combination of energy types. And I'm sure there will be a revisit to the renewable energy utilization at some point. However, unfortunately, at this point, there are operators who withdrew from the wind power generation due to the hike of the material costs. So from 2030 onwards, so that we'll be able to fully utilize them. The effort up to that point, I think, is quite required. Therefore, it's not that right now. Well, of course, at Aomori Prefecture, there's the Japan's largest windmill or wind power generation plants. There are multiple of them that is held, but that can immediately be connected to the data center operation. That is not the case. So I think it is going to require some more time. I understood it very well. Thank you. The second question is the first step of progress. It's an orthodox question. The upward revision is the recovery of the churn. And maybe in terms of the market, I think they're expecting more profit to be generated. So the first half, the entity East and West and other operating companies mainly. Against the internal plan, how were their performances? This is actually from corporate planning. The comparison to the internal plan overall, as you have assumed, for NTT Tocomo, they are strongly performing and progressing above the plan. And given that situation with the revision of the pricing, we have reflected all those factors on the upward revision. As for the global solutions of business, Different from the other communication type of business, it's not that every time it is growing at the same ratio, it is the growth ratio will change by project. But if we combine overseas and Japan domestica business overall, excluding a data center, sales or transfer. They are within the range of the progress that is necessary to achieve this year as a target. And for regional communications, year on year, they're in line with the prior year and against the internal plan. There's not much of a difference. And for others, for the electricity prices. The impact has occurred, and at Anode Energy, compared to what we have forecast at the beginning of fiscal year, there were differences, so that is negativity. I thought that at this quarter, you'll be able to have a bright type of explanation that you can give us. At the third quarter, there will be more bright news, especially for the NTT data. Well, the main bit will be NTT data, and it's already included in the plan, but the DEVCO type of Factor, I believe that it is going to start to generate solid numbers. And by that time, we'll be able to just share with you regarding other projects. The main part will be led by entity data. However, as Hattori mentioned right now, entity do go more. They're progressing above our plan. That is a fact. Thank you very much.

Thank you very much.

The next question should be the last question, because of time constraint. There's a few in the room, as well as those people participating online. Are there any questions? The person in towards the right, the person in the second row, please. Thank you, Mr. Ho-Sukuridis, Fujishiro. Mainly, I have two types of questions. First, it's a question rather for confirmation. Two-Q performance. Data transfer gain is zero in your Q2 results. Is that the correct understanding? Yes. Thank you. Then... In the second half, 70 billion yen, a transfer gain, is to be posted, and that plan remains unchanged. Yes, that is how I understand the situation, and that is your correct understanding. And in relation to that point, overall financial strategy, next fiscal year onwards, data center transfer gain, how much do you intend to, or how much do you plan to constantly post in terms of data center transfer gain? We do not have a detailed plan at the moment, but at least... What we are doing this year and the REIT. We have to add REIT. And last year's REIT, well, not as much transfer to the REIT as before last year, but at least this year's level, we hope to continue in terms of data center transfer to REIT. We do not have a specific plan, but that is our understanding. Thank you. The second question is about next fiscal year's performance, shareholder return. And... It may be too early to ask this question, but Docomo price revision is likely to contribute to next year's performance, and the east and west cost reduction will hopefully make a contribution as well, which means that I personally expect a lot next fiscal year. And the increase in dividend, 0.1 yen dividend payment increase. That's been the case for the past few years. And the share buyback, about 200 billion yen. And do we intend to accelerate the pace of increase of dividend payment or share buyback? Is there such a possibility at this point in time? We have not thought about that yet. After New Year, next year, we would like to start thinking about that. Thank you. That's it.

Thank you. With this, we would like to conclude today's briefing session.