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SoftBank dumps entire Nvidia stake and hints at more to come

Company beats Toyota in profit, as derivatives serve as shield from stock swoon

SoftBank chief Masayoshi Son speaks at an earnings conference in Tokyo on Wednesday. The 61-year old chairman said he plans to stay in his position until he is 69. (Photo by Maho Obata)

TOKYO -- SoftBank Group's $100 billion technology fund has sold its entire stake in U.S. chipmaker Nvidia, the company said Wednesday, as it announced its latest earnings which reflected the group's resilience but also the many risks it faces.

In the nine months through December, the group saw roughly 50% growth in net profit to 1.54 trillion yen ($13.9 billion), which overtook Toyota Motor's profit of 1.42 trillion yen for the first time.

Investors were bracing for disappointing results. SoftBank invests in some of the world's largest tech companies through the SoftBank Vision Fund, and tech stocks took a tumble during the quarter amid lingering concerns over trade and economic growth. Nvidia was among the big tech providers whose shares suffered, and the Vision Fund had held a roughly 5% stake in the company.

In a stunning response, SoftBank said it used derivatives to offset most of the investment loss. The Vision Fund had sold its entire stake in Nvidia by January.

Chairman and CEO Masayoshi Son further hinted that the Vision Fund, launched in late 2016 with the backing of Saudi Arabia, will eventually sell down stakes in portfolio companies like Uber Technologies and Slack, which are reportedly seeking to go public.

"People think I don't like to sell, but that is not the case," Son said in an effort to calm investors as SoftBank looks to maintain its fast-paced investments in large tech companies. The Vision Fund had invested nearly half of its committed capital in 49 companies by December.

In addition to the tech stock stumble, investors had been reeling from a disappointing stock debut of SoftBank's mobile unit, which went public in December.

SoftBank posted a 60% year-on-year rise in operating profit in the final three months of the year, to 438 billion yen. Profit from the group's Vision Fund segment jumped threefold, to 176 billion yen. The group said the profit included an increase in the valuation of U.S. ride hailer Uber Technologies after SoftBank's stake was transferred to the Vision Fund. The valuation of U.S. co-working space operator WeWork, among other investees, also rose.

Of the 49 companies in which the Vision Fund has invested, "most are unicorns and are involved with artificial intelligence in some form," Son said, using a term for privately held startups valued at $1 billion or greater. "I believe AI will bring about the greatest revolution in human history," he continued, saying the technology would "redefine all kinds of industries, from automobiles to health and real estate."

"This is the vision I believe in," said Son, "and our group AI strategy is to make strategic investments centered on this vision."

The sharp decline in the stock price of Nvidia resulted in a 447 billion yen investment loss for the Vision Fund in the October-December quarter. But SoftBank offset most of the loss through a derivatives gain after applying a hedging technique called a collar transaction.

That helped lift the group's net profit for the April-to-December period to a record 1.53 trillion yen, which eclipsed Toyota, Japan's largest carmaker.

It is uncertain whether the latest results will ease concerns as the group steers further away from the telecommunications business. SoftBank Group's stock price closed at 8,461 yen on the Tokyo Stock Exchange on Wednesday, ahead of the earnings announcement, down more than 20% from its peak in September last year. It has a market capitalization of about 9.3 trillion yen, which analysts say is a steep discount when stacked against the sum of its investments.

In a bid to close the gap in valuation, the group on Wednesday announced a 600 billion yen share buyback. "I myself as a shareholder feel that the group's stock prices are too low," Son said.

Speculation is growing that SoftBank will seek to launch another Vision Fund in the near future. Son said a second fund will not be launched "within the next few months," and that he has not decided whether to seek more funding from Saudi Arabia, which is being accused by the international community of ordering the murder of a Saudi-born, U.S.-based journalist in October. However, Son said he has a "good relationship" with the kingdom.

The 61-year-old chief aims to carry on "at least until I'm 69," he said. "At that point, I'll decide whether to stay on as CEO, or remain chairman and hand off my everyday duties" to a new chief executive, said Son. He noted that medical care has advanced in recent years, and described himself as "quite healthy, full of motivation and full of dreams."

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