May 18, 2017 10:00 am JST

Masayoshi Son's 'biggest regret' keeps SoftBank in investment mode

$100bn tech fund reflects his determination to ride the next paradigm shift

TAKASHI SUGIMOTO, Nikkei staff writer

SoftBank Group Chairman and CEO Masayoshi Son © Reuters

TOKYO Masayoshi Son hardly seems like a man who would be haunted by regret. The company he leads -- Japanese telecommunications giant SoftBank Group -- just announced an operating profit of 1.02 trillion yen ($8.9 billion) for the fiscal year ended March, up 13% on the year.

And yet, Son is still kicking himself for a decision he made nearly two decades ago. When the dot-com bubble collapsed around 2000, he chose to take a breather from acquisitions and concentrate on the broadband business. As a result, he missed out on massive opportunities.

With help from deep-pocketed Saudi Arabia, he is determined not to make the same mistake twice.

SoftBank is poised to launch a roughly $100 billion tech fund, with the Saudis chipping in $45 billion. In a meeting with Saudi Deputy Crown Prince Mohammad bin Salman last September, Son said God had given the kingdom the greatest gift of the 20th century: oil. But what about the 21st century?

A crystal ball, the SoftBank chief executive suggested, would make an even better present.

Son went on to describe his group's investment achievements since it set up a holding company 18 years ago -- all without the benefit of clairvoyance. The group's internal rate of return, a benchmark for investment fund performance, is 44%.

Now, Son told the young prince, he actually has a crystal ball -- or at least the next best thing.

That would be ARM Holdings, a British semiconductor designer SoftBank acquired for 3.3 trillion yen shortly before the meeting with Prince Mohammad. Son plans to distribute 1 trillion ARM chips worldwide over the next 20 years. What he really wants is the enormous amount of data these chips will help collect, since it will allow him to piece together a clearer vision of the future.

Son told the prince that he is making investment his focus, with his crystal ball in hand. The meeting lasted just 45 minutes, and Son walked away with a $45 billion commitment to his fund.

"$1 billion per minute," Son said. "That's not bad."

ARMED AND READY The time is ripe for SoftBank to be aggressive.

Group sales for the fiscal year that ended in March came to 8.9 trillion yen, up only slightly from the year before. But SoftBank's net profit tripled to 1.42 trillion yen, thanks in part to sales of stock holdings. The operating profit of over 1 trillion yen is even more impressive, since it does not include those one-time factors.

Over the past several years, the group has been preoccupied with turning around U.S. mobile unit Sprint. But it has made headway on that front and is now pushing the idea of a merger between Sprint and rival T-Mobile US -- a move that would create a third giant in the American market, alongside Verizon Communications and AT&T.

Deutsche Telekom, T-Mobile's German parent, has made some positive murmurs about an industry realignment in the U.S. "Purely theoretically, we can see several advantages to consolidation and convergence," CEO Timotheus Hoettges said at an earnings briefing on May 11.

Meanwhile, SoftBank's mainstay mobile business in Japan looks rock-solid. So it has the strength to make some moves.

It is buying up the bulk of new equity issued by China's Didi Chuxing, maintaining its status as a large shareholder in the ride-hailing company. The Japanese company's contribution made up 90% of Didi's latest funding round of $5.5 billion.

It also plans to invest up to several hundred million dollars in a hardware development project managed by Andy Rubin, an American programmer known for his work on the Android operating system for smartphones.

There are plenty of other juicy targets around, too. The internet of things is linking an ever-growing web of devices, while artificial intelligence is advancing at surprising speed. Son predicts that all industries are about to be redefined, and that humankind is on the cusp of the biggest paradigm shift in history: the Singularity. In the simplest terms, that is the point where AI becomes smarter than humans.

This is an era where startups will be born one after another, and some of them will become champions of tomorrow's industries.

Through the tech fund, Son wants to bring startups with that kind of potential under his wing. It will be a big wing: $100 billion exceeds all the money managed by the world's venture capitals combined.

Son says it is still far from enough.

When the telecom tycoon buys into a company, he prefers to do it in a big way -- obtaining 20% to 40% stakes to become the top shareholder in one shot. He is not worried about quick returns. What he really wants is to make connections and bring the winners of the future into the SoftBank fold.

Investment is merely a way to single out the technologies and business models that will survive the tech sector's evolution. But this approach requires more money -- which is why SoftBank is establishing the fund with Saudi Arabia.

This way, Son hopes to avoid more regrets.

NON-BUYER'S REMORSE Son was coming off a string of strategic moves in the 1990s when he decided to cool his investment jets. Now he wonders what might have been.

"That is my biggest regret in my life," he has said. "People would have called me crazy, but I should have continued the merger and acquisition activities."

It is easier to understand Son's feelings if you consider the companies he was close to holding stakes in: Amazon.com, Google and Baidu.

All have blossomed into top players in their fields, riding the smartphone wave. Son missed the chance to snag stakes at post-bubble bargain prices. He argues that, back then, the internet had not yet shown its true potential.

But Son is convinced that the internet of things will bring about even bigger changes. And when your company rakes in billions, there is such a thing as a second chance.

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