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  6. 2Q FY2018 Results Briefing

QAs from earnings release meetings and others

November 6, 2018: 2Q FY2018 Results Briefing

(*) This is a summary of questions and answers took place at the Briefing.

Question: How is Network Services' gross margin going to expand?
Answer: 2Q18 Network Services’ gross margin ratio was 16.2%(1Q18 16.8%, 2Q17 17.4%)mainly due to an increase in fixed type Network cost along with the launch of Full-MVNO services. (*1) The Full-MVNO revenue has been accumulating accordingly with our plan. We expect Network Services’ gross margin to expand as our mobile network utilization rate improves in the middle-to-long term along with an increase in enterprise mobile traffic due to expansion of IoT usages.
Question: Please explain how Systems Integration's gross margin for 2Q improved to 13.0% compared to 1Q18 10.5% and 2Q17 10.0%. Can the similar results be expected for the latter half of this fiscal year?
Answer: Systems engineers' productivity improved as we restructured our systems engineers' division at the beginning of this fiscal year from vertical, divide per customer industry, to horizontal, able to access any industry, so that we can utilize system engineers’ resources more effectively. The absence of noticeably unprofitable project has also contributed to Systems Integration gross margin ratio improvement.(*2) As for the latter half of this fiscal year, it’s difficult to make a comment as not all projects are visible at this point, we plan to maintain system engineers utilization and operate so that unprofitable projects are not made.
Question: 2Q18 IP Services revenue increased strongly by 6.2% year over year. Did JOCDN Inc. make any contribution? How are they doing?
Answer: JOCDN has been proving CDN services to 15 clients (*3) including a large contents holder and handling growing volume of traffic. JOCDN has been making business developments almost as planned; we expected a few hundred millions Japanese yen of revenue from JOCDN most of which is to be recognized in IIJ’s Internet connectivity services for enterprise.
Question: What is the breakdown of operating income?
Answer: As our business model is to provide Network Services and Systems Integration together to meet clients' need, we do not divide Sales and General Administrative expensive, meaning there is no operating income for each. Improvement of Systems Integration gross margin as well as expansion of total gross margin contributed to the operating income growth.
Question: Going forward, how is each revenue going to accumulate for the next fiscal year?
Answer: We haven't started to make budget plan for the next fiscal year. Generally speaking, as over 80% of our consolidated revenue is made up by monthly recurring revenue, we assume the first half results shall lead to the latter half and the next fiscal year.
Question: Compared to the subscription growth of consumer mobile(IIJmio), its revenue seems to be growing stronger. How is so?
Answer: We offer SIM and headsets bundled services and we have a wide range of headsets. We continuously expand our headsets line-up (recently we offered OPPO and Essential Phone) and such offerings are attracting orders.
Question: How will NTT Docomo's significant price down impact consumer mobile market and IIJ' MVNO business?
Answer: Although it’s difficult to make comment when their service offers’ details are not disclose, we can say that we always pay close attention to mobile carriers, other MVNO players and market trend, not only to this particular event. We shall continue to operate our MVNO business. Also, we think it is natural to imagine that mobile interconnectivity charge for MVNOs(*4) should also decrease. As for the government, their strategy to expand MVNO market share by changing regulations remain the same.
Question: How will NTT Docomo's plan to split communication service charges and headsets impact consumer mobile market and IIJ' MVNO business?
Answer: While it's difficult to make comment when their service offers' details are not disclose, our line-ups of headsets is considered one of the best among MVNOs and our SIM-headsets bundled offerings are accumulating orders. As long there is a fair competition, we think it's a good thing.
Question: What kind of strategy will IIJ take if mobile interconnectivity charge for MVNOs decrease?
Answer: We shall make decisions most appropriate to situations. We think maintaining good service quality is important.
Question: How is mobile business doing compared to the middle-term plan?(*5)
Answer: For our middle term plan, we based that the net addition of subscription for M2M(*6)/IoT transactions are to be larger than consumer mobile. Along with the launch of Full-MVNO services we're seeing M2M/IoT related subscription accumulating.
Question: iPhone and its comparability with eSIM
Answer: Towards the service launch of our official eSIM platform services next spring, (*7) we're working on verification on many products not only iPhone and seeing favorable verification test results. As we're deciding on the details of services, we are not yet able to explain them.
Question: Outlook for Market and IT investment
Answer: While it's difficult to foresee macroeconomics, we expect favorable IT market as demands for IoT are quite inevitable. By leveraging our comprehensive services line-ups such as Full-MVNO, Cloud, SI, and Security as our competitive advantage, we aim to expand our business.
Question: Status on human resources
Answer: Although turnover at IIJ is quite low among IT sector (half of sector-average), we recognize human resources situation is tough and implementing counter-measures.
  • (*1)Full-MVNO related fixed type cost is approximately JPY0.3 billion per quarter and has started from March 2018, the service launch.
  • (*2)Please also take a look at page 2PDF, 5PDF, and 9PDF[714KB] of our presentation material for 2Q18 announced in November 6, 2018.
  • (*3)Please also take a look at page 20 of our presentation material for 4Q17 announced in May 15, 2018PDF [907KB].
  • (*4)IIJ provides MVNO services through MVNO scheme by purchasing mobile infrastructure from NTT Docomo. The connection charge, a flat-rate per Mbps is calculated every year based on NTT Docomo's actual costs in a previous year along with the "Telecommunications Business Law" and the "Guidelines related to Operation of the Institution of Category II Designated Telecommunications Facilities."
  • (*5)We disclosed our middle term plan in our FY2015 earnings. For details please see here.
  • (*6)Abbreviation for Machine to Machine. It enables devices connected to network to exchange information automatically and perform designed actions.
  • (*7)As written in our press release published in July 12, 2018 "IIJ to Begin Verification of eSIM Devices and Full MVNO Services," we are planning to launch commercialized eSIM platform services in spring 2019.

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