NTT Data’s Profit Growth Signals Strategic Shift to High-Growth Sectors

NTT Data Group reported a 6% rise in profit for fiscal year 2024, marking a pivotal year for the Japanese tech giant as it pivots toward high-margin sectors like AI, data centers, and autonomous driving. While legacy telecom segments faced headwinds, the company’s strategic focus on innovation and global expansion positions it to capitalize on digitization trends.

Financial Performance: Growth Amid Transition

The company’s consolidated sales hit ¥6.59 trillion, a 3.6% year-on-year increase, driven by its Global Solutions segment and comprehensive ICT business. Foreign exchange tailwinds added ¥100 billion to revenue, reflecting NTT’s growing global footprint.

However, net income dipped to ¥554.8 billion, pressured by declining margins in mobile communications and restructuring costs. A key bright spot was EBITDA growth, rising 0.7% to ¥1.69 trillion due to cost efficiencies in data center operations and smart infrastructure projects.

Business Drivers: Shifting to High-Growth Sectors

1. Global Solutions Dominance:
   Revenue surged in Japan’s public, financial, and corporate sectors, with overseas data center sales and foreign exchange benefits driving gains. The segment’s operating income rose sharply, fueled by margin improvements and reduced restructuring costs.

2. Smart Life and Financial Services:
   NTT DOCOMO’s d Payment and d Card PLATINUM platforms expanded rapidly, capturing 20% of Japan’s digital payment market. This growth highlights the company’s success in monetizing consumer-facing services.

3. Strategic Investments Pay Off:

4. Data Center Expansion: Plans to build nine new data centers in India by 2025 align with the region’s 20% CAGR in cloud infrastructure spending.
5. Autonomous Driving: Partnerships with May Mobility (U.S.) and Navya Mobility (France) are advancing trials in Nagoya, with commercial launches expected by 2026.

Technological Leap: AI and Photonics

NTT’s tsuzumi AI platform, launched in 2024, has secured 10 enterprise clients and over 260 partnerships, with plans to scale its 7B-parameter model. Meanwhile, its IOWN APN (All-Photonics Network) initiative—spanning 3,000 km between Japan and Taiwan—offers low-latency data services, a critical edge in global cloud competition.

Challenges and Risks

• Legacy Sector Struggles: The Regional Communications segment saw sales decline due to shrinking fixed-line revenues and disaster recovery costs. NTT aims to offset these through cost-cutting and optical service upgrades (e.g., 10Gbps broadband).
• Shareholder Sentiment: Despite record shareholder numbers (2.44 million), the stock price underperformed in early 2024 due to profit warnings. Management emphasized individual investor confidence as a counterweight to institutional selling.

Outlook: 2025 and Beyond

NTT views 2024 as the “bottom year” for profitability, with FY2025 poised for accelerated growth. Key catalysts include:
- AI Commercialization: The upgraded tsuzumi platform targets 1,000+ enterprise contracts by 2025, leveraging partnerships with Toyota for mobility AI solutions.
- IOWN Commercial Launch: Photonics-electronic devices by 2026 could slash data center energy costs by 87%, a game-changer in a $230B global market.
- Banking Venture: Plans to enter Japan’s open banking sector by May 2025 could unlock new revenue streams in financial services.

Conclusion

NTT Data’s FY2024 results underscore a strategic pivot toward high-growth sectors, even as legacy businesses face headwinds. With ¥10 trillion in annual sales and initiatives like India’s data centers and AI-driven mobility platforms, the company is well-positioned to capitalize on digitization trends. While execution risks remain—particularly in IOWN’s commercialization and cost discipline—NTT’s focus on innovation and scale sets it apart in a competitive IT landscape. Investors should monitor tsuzumi’s enterprise adoption rate, data center expansion progress, and foreign exchange impacts as key indicators of future performance. For now, NTT’s blend of technological ambition and global reach makes it a compelling long-term play in the digital economy.