By Kiyoshi Takenaka
TOKYO (Reuters) -Japan's SoftBank Group Corp fell to a quarterly loss on Tuesday, as its giant Vision Fund investment unit remained in the red for a fourth straight quarter, sharpening focus on when markets will recover enough to allow it to list some assets.
The Vision Fund, which upended the world of technology with its big bets on startups, reported an investment loss of 730.36 billion yen ($5.52 billion) in the fiscal third quarter. At SoftBank itself, the net loss totalled 783.42 billion yen, compared with a 29.05 billion yen profit a year earlier.
The results could make investors even more keen to see an initial public offering (IPO) of British chip designer Arm, considered one of the sprawling conglomerate's prize assets. SoftBank aims to list Arm by the end of 2023, the company said.
"The Vision Fund has been strictly managed for the past year under the severe environment. We intend to keep that tight management in place and ascertain ... investment opportunities as we go forward," Chief Financial Officer Yoshimitsu Goto said.
The market turmoil since last year - and SoftBank's results themselves - show how rising interest rates, deepening U.S.-China tensions and Russia's invasion of Ukraine have worked to blunt investor appetite for riskier assets, casting a shadow over the Japanese group's vast portfolio of startup investments.
Arm has made "good progress in terms of being IPO-ready," Navneet Govil, the fund's chief financial officer, told Reuters after the results, adding there were about 30 companies in the fund's portfolio that are set to go public when markets are ready.
SoftBank said the Vision Fund unit had significantly curtailed new investments and was continuing to sell some older ones as part of "prudent defensive financial management" amid the challenging market environment.
The unit's investment loss of 730 billion yen in the October-December quarter was down from a loss of 1.38 trillion yen in the previous quarter.
"If there is a silver lining, the quarterly loss was the lowest of the last four quarters," Redex Research analyst Kirk Boodry said in a research note.
Founder and chief executive Masayoshi Son - who is synonymous with SoftBank - did not speak at the results presentation. He said in November he would not be making such appearances for the time being, to better focus on Arm's growth.
GOOD ARM
The bulk of the loss at the Vision Fund unit came from a steep decline in the valuation of investments in unlisted companies. The unit had investments in 348 companies as of end-December, of which 311 are private.
Among listed portfolio companies, Indonesian ride-hailing company Goto Gojek Tokopedia PT, South Korean e-commerce platform Coupang Inc and workspace provider WeWork Inc contributed to the loss.
Arm posted a 28% jump in quarterly net sales to $746 million, helped by higher royalty revenue from its high-end 5G smartphone chips.
It has a more than 95% market share of the main communication chips used in mobile devices. Still, SoftBank warned the chip designer is also bracing for the impact of a broader tech industry slowdown.
"Some of Arm's customers have indicated that inventory levels are very high across the value chain, which may result in their revenues declining for a short period until inventory levels are lower," it said in a statement.
The net loss also marked a sharp turnaround from the 3 trillion yen net profit SoftBank reported in the prior July-September quarter, when it was buoyed by the sale of some of its stake in China's Alibaba (NYSE:BABA) Group Holding.
Son has invested heavily in artificial intelligence and other high-tech startups through the Vision Fund in recent years, delivering both record profits and heady optimism about future valuations.
He has since been forced to cut back on investment activity and disappointed the market in November when the company did not announce further share buybacks. SoftBank did not announce a buyback scheme on Tuesday, either.
($1 = 132.2200 yen)