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Nippon Telegraph & Telephone Corp. declared encouraging mixed financial results for the first quarter of fiscal 2011 (ending March 31, 2012). Revenue increased due to strong execution of long-distance call and international operations. However, net income declined resulting from poor contribution from fixed-line calls. Nevertheless, the company’s wireless services wing, NTT DoCoMo reported a surge in profit, which helped the parent Nippon to generate more operating income in the last quarter.

On a GAAP basis, net income in the first quarter of fiscal 2011 was approximately $1,876 million, down 1.8% year over year.  EPADS (Earning per American Depository Share) was approximately 71 cents, down 1.8% year over year. Quarterly total revenue was around $31,099 million, an increase of 1.5% year over year.

Quarterly operating expense was nearly $26,913.3 million, up 1.3% year over year. However, operating income in the previous quarter was approximately $4,296 million, up 2.8% year over year. First quarter of fiscal 2011 operating margin was 13.8% compared with 13.6% in the prior-year quarter.

During the first quarter of fiscal 2011, Nippon generated approximately $6,127 million of cash from operations, down 2.7% year over year. Free cash flow (cash flow from operations less capital expenditures) in the previous quarter was $1,545 million, up 6.3% year over year.

At the end of the first quarter of fiscal 2011, Nippon had approximately $22,366 million of cash & marketable securities on its balance sheet compared with around $22,847 million at the end of fiscal 2010. Total debt was around $55,102 million at the end of the first quarter of fiscal 2011 compared with $55,148 million at the end of fiscal 2010. At the end of the first quarter of fiscal 2011, debt-to-capitalization ratio was 0.27 compared with 0.30 at the end of fiscal 2010.

Segment Wise Results

In the first quarter of fiscal 2011, Fixed voice revenue was $6,164.6 million, down 9.6% year over year. Mobile voice revenue was $5,930.3 million, down 6.9% year over year. IP/Packet Communications services revenue was $10,743 million, up 7.1% year over year. Sale of telecommunications equipment was $1,586.9 million, down 22.3% year over year. System Integration revenue was $4,794.4 million, up 41.8% year over year. Other segment generated the remaining $1,990.2 million, down 4.9% year over year.

Future Financial Outlook

For full fiscal 2011, management expects total revenue to be approximately $128,588 million. Operating income will be around $15,128 million and net income will be approximately $6,588 million. Moreover, fiscal 2011 ADS will be around $2.64.

Recommendation

Currently, Nippon has a short-term Zacks #3 Rank (Hold) on the stock. We maintain our long-term Neutral recommendation on Nippon.

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