NTT Recorded a Strong FY 2018 and Revealed Its 2019 Plan

A. Amir

Summary Bullets:

  • NTT Communications recorded strong top-line performance in FY 2018, with revenue and income growth of 4.4% and 11.5%, respectively.
  • In FY 2019, the provider will focus on brand integration across NTT Communications, Dimension Data and NTT Security, as well as a vertical strategy through its ‘Smart World’ initiatives.

Top-Line Performance

Earlier this month (May 10, 2019), NTT Communications released its FY 2018 results (ended in March 2019). The provider recorded strong top-line performance, with growth in revenue and income by 4.4% to 1,392 billion yen (~US$12.7 billion) and 11.5% to 132 billion yen (US$1.21 billion), respectively. This growth may not be so high in general, but it is impressive considering the slowdown in the telecom and ICT market. For example, compared with its regional peers, both Singtel and Telstra saw flat revenue in their latest financial year, with changes of only 0.6% and 0%, respectively. NTT Communications’ FY 2018 revenue also exceeded its target set a year prior, by 12 billion yen (US$110 million). The increase was mainly driven by the double-digit growth in cloud (12.0%), solution services (11.9%) and global business (11.2%).

Apart from financial results, the provider also shared its business plan for the current financial year (FY 2019). The two main areas are the brand integration across NTT subsidiaries (NTT Communications, Dimension Data and NTT Security) and its vertical strategy.

Brand Integration

Since the first announcement on the integration between NTT subsidiaries in November 2017, there has been the behind-the-scenes collaboration, yet the overall merger is behind schedule. This casts uncertainty between employees, customers and the market overall. NTT finally cleared the air with its plan to integrate NTT Communications, Dimension Data and NTT Security and rebrand them to NTT Ltd. for its global operations in July 2019. NTT Communications’ brand will be retained but only for the Japanese domestic business. NTT Ltd. will be carrying assets and resources from the subsidiaries and headquartered in London, UK, with a physical presence in 57 countries. The new organization (NTT Ltd.) will be run by around 40,000 employees, led by Jason Goodall (the current CEO of Dimension Data), and have combined revenue of US$11 billion. While their respective strengths (e.g., NTT Com networking solutions, Dimension Data professional services and NTT Security MSS capabilities) complement each other and enhance NTT Ltd.’s portfolio and service delivery, there will also be challenges such as resource redundancies, go-to-market initiatives and backend integration. While large-scale automation is what often delivers the most in terms of new efficiencies, it is usually a costly and long-term project.

Vertical Strategy

Besides brand integration, NTT Communications also shared its vertical strategy in the FY 2018 results announcement. Vertical strategy has been the main weakness of the provider. While it has customer references from various sectors, its products and services have been offered horizontally and industry solutions are still missing from the portfolio. First announced in October of last year, ‘Smart World’ will be the key area for the provider to strengthen its vertical capabilities. The initiatives are enabled through the integration of its capabilities and data utilization across the subsidiaries and ecosystem partners. Its Smart World references include regional energy management with Kitakami and transportation with the city of Yokohama. Outside Japan, NTT has also signed an MoU with the state of Nevada and city of Las Vegas for smart city initiatives. The provider is also creating new vertical LoBs such as NTT Anode Energy (to be launched in June 2019) for smart energy and NTT Life Science for medical/healthcare. In line with the market direction, the vertical initiatives will enable NTT to further grow its business by addressing the ICT requirements across industries. It will also close the gap between NTT and competitors in vertical offerings. However, there could also be a potential impact from the brand integrations. For example, as all three entities have their respective security capabilities, the backend integration may result in some changes in the security capabilities and service deliveries of its current smart city solution.

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