Ntt Docomo Inc (NYSE:DCM)

CAPS Rating: 5 out of 5

A wireless telecommunications services provider that offers telecommunication services such as third generation and second generation cellular services, PHS services, and other specialized wireless telecommunications services.


Player Avatar NetscribeInterna (74.43) Submitted: 5/31/2007 7:47:00 AM : Underperform Start Price: $13.94 DCM Score: +31.40

NTT DoCoMo finished its fiscal year ended 31 March 2007 with a struggling performance. Revenues registered a rise of less than 1% to Y4.314 trillion, as a result of higher sales from the mobile phone business segments due to the introduction of new cell phones. However, it is the drop in the bottom-line that leaves much to be desired, as net income declined 25% to Y457.28 billion. The slump can primarily be attributed to increased sales promotion expenditure incurred by the company amid of intensifying competition and lack of special gains booked a year ago.

The company is currently facing tough competition from rivals such as KDDI and Softbank. Although NTT DoCoMo has 54% market share of the domestic Japanese market, the aggressive strategy of the competitors that includes a number portability service, which allows people to keep their phone numbers when the switch carriers, is forcing the company to follow various margin depleting strategies like increasing the sales incentives and providing handset subsidies to prevent users from switching and retain the market share.

NTT DoCoMo since long has been trying to increase the contribution of other sources of income as the domestic cell phone market appears saturated. The recent move to invest Y9 billion, for the 3% stake in the convenience store chain FamilyMart is just part of the ongoing strategy, though it will also benefit company’s latest mobile credit service. Moreover, the recent fallout of launching mobile Internet services in India using DoCoMo's technology, gives a setback to NTT DoCoMo’s target of establishing the service outside of Japan. Going ahead, the company itself sounds pessimistic about on-going fiscal, and estimates the continued fall in the profits, as increased 3G migration cost are projected to hamper the bottom line. Thus considering the saturated nature of the Japanese market, and no major inflows from the other sources or markets outside Japan, it will be better to stay away from the company, at this point of time.

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