DoCoMo Takes a $4.7B HitDoCoMo Takes a $4.7B Hit
Japanese giant revalues its overseas holdings, attracting the ire of 3G partner Hutchison Whampoa
October 2, 2002
International expansion has its ups and downs, as any company with global aspirations will tell you. Today, NTT DoCoMo Inc. (NYSE: DCM) experienced one of the downs as it adjusted the value of its investments in the U.S., the U.K., and the Netherlands by nearly $4.7 billion (see DoCoMo Eats Overseas Losses).
In so doing, it incurred the wrath of business partner Hutchison Whampoa Ltd. (Hong Kong: 0013), which has not appreciated the valuations placed by its joint shareholders in Hutchison 3G UK Ltd. of late.
But before we get to the recriminations, here's a rundown of DoCoMo's "impairment losses" that "reflect significant drops in the market price or fair value of the shares of some of its overseas investee affiliates":
Table 1: DoCoMo's Overseas Writedowns, H1 2002
AT&T Wireless Services, Inc.
KPN Mobile N.V.
Hutchison 3G UK Holdings Ltd.
(A) Total impairment losses for overseas investee affiliates
(B) Net assets ended March 31, 2002
(C) Recurring profit for the fiscal year ended March 31, 2002
(D) Net income for the fiscal year ended March 31, 2002
Source: NTT DoCoMo Inc.
This latest revaluation follows a writedown on its international assets of ¥916 billion ($7.5 billion) for the last full financial year, which ended in March.
The Japanese operator now values its 16 percent stake in AT&T Wireless Services Inc. (NYSE: AWE) at ¥266 billion ($2.16 billion) following the first-half writedown of ¥339 billion ($2.76 billion).
The ¥108 billion ($877 million) adjustment to DoCoMo's stake in KPN Mobile is a writedown to zero -- a long fall from the €5 billion DoCoMo paid for the 15 percent slice back in 2000.
Last but not least, DoCoMo has taken a ¥126 billion hit on its stake in Hutchison 3G UK (H3GUK), on the very day the 3G hopeful starts handing out dualmode handsets from NEC Corp. (Nasdaq: NIPNY) to "friendly users." This leaves DoCoMo's stake in the U.K. operator valued at ¥39 billion ($317 million).
And while DoCoMo was announcing its revaluations, NEC slipped in with its own investment in the U.K. 3G player (see NEC Invests in Hutchison).
The writedown of the H3GUK stake angered majority shareholder Hutchison Whampoa, which had earlier in the year seen KPN Telecom write off its share of the U.K. 3G license-holder to zero and invite bids from the market for its 15 percent stake (see Hutch Gets the Hump With KPN).
"We disagree with the rationale behind DoCoMo's accounting decision announced today," says a rapidly released Whampoa statement. "That decision has been made in response to fluctuations in sentiment in the international capital markets, rather than any change in underlying business fundamentals supporting the 3G business which we have built in the U.K. -- a fact that DoCoMo themselves acknowledge by pledging to maintain their commitment to the development of 3G services."
Hutchison Whampoa says it has undertaken a "thorough and detailed impairment test" on its 3G assets, "as a result of which it is clear that there is no requirement to write down our investments in 3G licenses and services. We are building real businesses and are on target to begin a phased rollout of 3G services in this quarter."
While Hutchison starts getting its mates to test out the U.K. 3G network, DoCoMo is still struggling to attract folk to its own next-generation network. The uptake has been so slow that DoCoMo's original target for 3G subscribers -- 1.4 million by the end of March 2003 -- now looks out of reach.
Local reports suggest that this goal will be lowered 70 percent to just 400,000, but the company is refusing to comment until it announces its full first-half financials in November. At the end of July, DoCoMo had just under 130,000 subscribers to its FOMA 3G service.
— Ray Le Maistre, European Editor, Unstrung
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