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Nippon Telegraph & Telephone Corp. (NTT - Snapshot Report) declared mixed financial results for the third quarter of fiscal 2011 (ending March 31, 2012). Besides, revenue increased due to strong execution of IP/Packet Communications and Systems Integration services. Moreover, the company’s wireless services wing, NTT DoCoMo (DCM) also reported a healthy revenue growth.

On a GAAP basis, net income in the third quarter of fiscal 2011 was approximately $809.64 million, down 56.1% year over year.  EPADS (Earning per American Depository Share) was approximately 32 cents, down 54.1% year over year. Quarterly total revenue was around $33,915 million, an increase of 3.4% year over year.

Quarterly operating expense was nearly $29,736 million, up 4.5% year over year. Operating income in the previous quarter was approximately $4,179 million, down 4.3% year over year. Third quarter of fiscal 2011 operating margin was 12.3% compared with 13.3% in the prior-year quarter.

During the first nine months of fiscal 2011, Nippon generated approximately $20,852 million of cash from operations, down 6.8% year over year. Free cash flow (cash flow from operations less capital expenditures) in the reported period was $7,514 million, down 13.4% year over year. At the end of the third quarter of fiscal 2011, Nippon had approximately $18,385 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 $55,568 million at the end of the third quarter of fiscal 2011 compared with $55,148 million at the end of fiscal 2010. At the end of the third 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 third quarter of fiscal 2011, Fixed voice revenue was $6,205 million, down 11.7% year over year. Mobile voice revenue was $6,044.5 million, down 9.2% year over year. IP/Packet Communications services revenue was $11,733 million, up 8.3% year over year. Sale of telecommunications equipment was $1,831 million, down 0.2% year over year. System Integration revenue was $5,843 million, up 46% year over year. Other segment generated the remaining $2,259 million, down 7.9% 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 EPADS 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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