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Sprint Isn’t Dragging Down SoftBank’s Earnings Like It Used to

November 7, 2016, 10:36 AM UTC
A woman uses her mobile phone outside a Softbank mobile phone shop in Tokyo on July 11, 2013. SoftBank closed a 21.6 billion USD deal to gain a controlling stake in Sprint, the firm said on July 11, creating a stronger player in the competitive wireless market by acquiring the number three US mobile carrier. The deal was completed after the end of July 10 trade in New York. AFP PHOTO / Yoshikazu TSUNO (Photo credit should read YOSHIKAZU TSUNO/AFP/Getty Images)

Japan’s SoftBank Group (SFTBY) reported on Monday a 6.8% rise in operating profit for the July-September quarter, thanks to a strong showing by its domestic telecommunications business.

A steady growth in its mainstay domestic business is important for SoftBank, a diverse company with stakes from U.S. carrier Sprint to e-commerce giant Alibaba, as it reorients towards cutting edge tech investments in line with founder and chairman Masayoshi Son’s growth plans for the firm.

As part of that game plan, SoftBank in September bought UK chip designer ARM Holdings (ARMH), Britain’s most valuable technology company, for $32 billion, in Japan’s largest ever outbound deal.

Its second-quarter profit rose to 334.7 billion yen ($3.21 billion) from 313.4 billion yen a year earlier. That compared with a 287 billion yen average estimate from two analysts, according to Thomson Reuters Starmine.

SoftBank‘s domestic telecommunications operations posted an upbeat performance in the quarter, as the company has mostly completed network infrastructure investments and is yet to start full-fledged investments in the next-generation network.

Sprint (S), owned 83% by SoftBank and a long-time drag on the Japanese telecom group’s earnings, is also showing signs of improvement.

Sprint reported a return to operating profit in the latest quarter, strong net additions in postpaid phone subscribers, and a record-low cancellation rate. It also raised the full-year outlook for operating profit.

As the wireless phone and broadband service markets are showing signs of maturing in Japan and the United States, however, SoftBank has been stepping up investments in new areas for future growth. Some of those moves have caused concern among analysts, as it is wrestling with a $112 billion debt pile.

Just about a month after the completion of the ARM deal, SoftBank and Saudi Arabia said they will create a technology investment fund that could grow as large as $100 billion.

SoftBank expects to invest over the next five years at least $25 billion in the fund, which would be one of the world’s largest private equity investors and a potential kingpin in the technology industry.

“Our investments were previously confined to our balance sheet,” Son said at an earnings briefing. “By creating the new fund, we would be better positioned to leverage the coming opportunities.”