This, at a time when several EU governments are reeling under heavy national debts and investors are facing uncertainties such as creeping inflation and the pressure on fuel costs which skyrocketed following the war in Ukraine.
Although the US economy seems to be sailing along with over 500,000 jobs added last month, yet there are few achievers in Europe while China's economy is no longer registering double-digit growth. Observers highlighted factors weighing on valuations of tech stocks in China, ranging from fast-rising inflation and expected interest rate hikes. One glaring example of failure has been registered this quarter by the maverick Masayoshi Son aka SoftBank driver.
He plans widespread cost-cutting at his Japanese conglomerate and its Vision Fund investment arm after a record $23.4bn loss on plunging portfolio valuations and foreign currency losses. The Tokyo-based company lost the vast majority of that money - $17.3bn - in the Vision Fund, as it marked down the value of prime holdings. SoftBank also reported a $6.1bn foreign exchange loss because of the weaker yen. Curious how only a quarter earlier, SoftBank still had profits of about $22bn in its investment arm. This includes the first and second Vision Funds as well as Latin American funds.
As of June, essentially all of those profits had disappeared. To bolster SoftBank's share price, he unveiled a fresh programme to buy back as much as 400bn yen of its own stock. The company has turned to such repurchases repeatedly in recent years, including a 1 trillion yen programme announced in November.
SoftBank's Vision Fund, the world's largest technology investment vehicle, holds large stakes in hundreds of unlisted technology start-ups. But low valuations have been draining SoftBank's ability to turn public listings of its portfolio companies into liquidity to fuel further big bets. The pipeline of initial public offerings (ipos) from its $100bn Vision Fund and its smaller sister, Vision Fund 2, is drying up. Its Japanese telecoms business, SoftBank Corp, remains profitable. It has survived previous bear markets intact, including the dotcom bust at the turn of the century, not least thanks to Son's early bet on Alibaba.
Now the penny has dropped and recently the 64-year-old maverick struck a darkly sombre tone after dreadful results. Stoically, he took full responsibility for buying into start-ups at the height of the market and pledging to slash expenses to get back on track. The axe may fall on staff both in front and back offices to an extent never experienced before. Chief Operating officer Marcelo Claure left earlier this year, while former chief Strategy officer Katsunori Sago resigned in 2021.
Traditionally, he preferred the vast use of robotics and AI, as in his opinion these reduce cost of manufacturing. One may ask, who helped him to fund such expensive acquisitions? The answer is a cohort of venture capitalists who are constantly poised to look out for talented persons in their ongoing recruiting outreach.
Created by Son in 1981 to distribute computer programmes, SoftBank first delved into internet services in the 1990s before reinventing itself as telecoms business. Along the way, in 2000, Son paid $20m for a chunk of Chinese e-commerce upstart called Alibaba. That genius bet - Alibaba is now a global giant worth nearly $600bn - earned Son kudos as a tech evangelist. It bought the Japanese activities of Vodafone, a British mobile carrier, in 2006.
In 2013 it bought Sprint, a US mobile provider. It also inspired him to transform SoftBank into an investment firm. Son (see picture) is a Japanese businessman with Korean ancestry who studied Economics at the University of California, Berkeley in the late 1970s. While still a university student, Son brought Japanese coin-operated arcade games such as Space Invaders, Scrambler and Pacman to California.
His visionary approach started with first an arcade games business and many pundits do compare him to Warren Buffet. Son recorded a log of daily cash received for each video game machine and its trends. Some games were popular at the beginning and quickly tapered off, while others were perennial hits. In the earliest days of the web, Son invested in some 800 companies during the dot-com boom, including well-known brands like Yahoo.
As mentioned earlier, Son paid $20m for a chunk of Chinese e-commerce upstart called Alibaba. In 2018, Son spun off some Japanese telecoms assets and unveiled the Vision Fund 2. SoftBank raised $45bn from Saudi Arabia's Public Investment Fund (PIF) and $15bn from Mubadala, Abu Dhabi's sovereign-wealth fund. Many appreciate the disruptive technology of AI - well harnessed it has a benign purpose and is helping in various ways such as to link various civilizations, improve crop yields, scan persons for trace of infection in airports, schools etc. and speed up progress in complex human Genome classification. It has become a cliché how artificial intelligence in machines can do medical assessments during epidemics when over-worked doctors are busy tending the sick.
Imagine how soon, there will be robots which are efficient and devoid of emotions quietly supervising hundreds of complex factory operations, possibly during the temporary absence of workers cordoned off under extended quarantine mandated during pandemics. Sadly, early this year was not an easy one for SoftBank. It has strived to improve telecommunication quality and speeds so customers can enjoy mobile communications, the Internet, video streaming services and social platforms stress-free.
In a true spirit of resilience, SoftBank will continue to build a telecommunications environment that is convenient for customers, as well as provide services and solutions that meet their needs. SoftBank was the global winner for Video Experience, a metric that measures the quality of video streamed to mobile devices by measuring real-world video streams over an operator's network, and Games Experience.
Fancy this new category that analyses latency and the overall gaming experience when using an operator's network. In conclusion, some analysts believe SoftBank should be able to weather the storm, pointing to an estimated $23bn cash on hand held by the Group.
George M. Mangion is a partner in PKFMalta, an audit and business advisory firm