Internet Initiative Japan Inc. Corporate Overview IR Roadshow in Edinburgh, London, Paris and Milan June and July 2015 TSE1:3774 NASDAQ:IIJI
Key Investment Highlights Pioneer and Top IP Engineering Company in Japan Shifted from ISP to Total Network Solution Provider Target Blue-chip & Governmental Organizations Over 8,500 Excellent Japanese Customers Growth Strategy with Recurring Revenues & Income Growth Hot Topics Best Positioned in the Growing Outsourcing & Cloud Computing Market MVNO Business Rapidly Growing by Capturing both Corporate and Consumer needs details to follow 2
TOP IP Engineering Company in Japan Established December 1992 Number of Employees Consolidated: 2,835 (approx. 70% engineers) (as of Mar. 2015) Listed Markets NASDAQ (IIJI), TSE1 (3774) Large Shareholders NTT (21.6%), Koichi Suzuki (5.6%*), NTT Communications (4.4%) (as of Mar. 2015) *Jointly owned by Mr. Suzuki’s wholly owned private company The first established full-scale ISP in Japan Introduced many prototype internet-related network services Highly skilled top level IP engineers Pioneer of network technologies in Japan Operates one of the largest Internet backbone networks in Japan Self-develop services and the related back office facilities Established “IIJ” brand among the Japanese IT market Known for its engineering & network operation skills High customer satisfaction & long term relationship Approx. 8,500 clients: mainly large enterprises & governmental organizations At the leading edge of IP R&D Engaged in software development of SDN Founding member of JEAG Co-working with MIC* *MIC: Ministry of Internal Affairs and Communications Participation in world-wide research and organizations … and many more 3 3
Entrepreneur of Network Technologies Business and Service Development to Initiate the Market BigData Overseas Solution SI Projects The first full-scale ISP in Japan SDN/NFV FX In-housed development Container Cloud Service In Application US & China & DC Development UK & Singapore At leading edge of IP R&D Cloud Systems Computing IPTV IP specialists Operation “IIJ GIO” Platform SACM Large Volume Systems solution Data Smart Integration P to P Distribution Mobile iBPS Consumer Internet LaIT Mobile LAN DC LTE M2M Managed Internet VPN Service Web CDN Gateway Anti-spam Global IP Multicast Solution WAN SEIL DDoS MVNE IIJ ISP Mobile SMF hi-ho in U.S. Wide Asia Consumer Firewall LAN Backbone Service ISP IIJmio IPv6 Home Page IX Service Dial-up SLA service IIJ4U Web Hosting Service 1992 1996 1997 1998 2006 2007 2008 2010 2012 2013 2014 IIJ Group 4 4
Strategic Shift in Business Model From “ISP” to “Total Network Solution Provider” EMERGE Revenue Cloud Computing (JPY million) Systems Integration: Systems Construction Systems Operation and Maintenance One-time Network Services: Revenue WAN Services BLOOM Outsourcing Services Harvesting the flower of Internet Connectivity Services Total Network Solution Provider Transition Change in business model Recurring Revenue NASDAQ Listed on IPO TSE WAN Business (M&A Sep. 2010) Birth Earned its enduring client base Increase in number Heavy price CWC filed for Merger of corporate Rise in needs for of ISPs competition Chapter 7 ISPs Cloud /Outsourcing 5 5 5
Business Structure of Network Services IIJ Internet Backbone Gross margin ratio Smaller than estimated decrease on NTTDocomo’s data communication charge led to an increase in our Revenue mobile-related cost which is recognized as outsourcing cost (For detail, please refer to page 19 Cost of this presentation material) Network services costs don’t increase along with network services revenues • If revenues are accumulated continuously, gross margin should continuously improve • Multiple cross-selling revenue sources provided from the Internet backbone • Monthly recurring revenue , contract periods are usually 1 year (contracts per network bandwidth) • Blue-chip clients with mission-critical business, network operator clients (Carriers, ISPs, CATVs, etc) Revenues • Tough competition ended, only a few high-end ISPs survived • Revenues increase along with bandwidth migration and accumulation of service orders • Enjoying scale merit along with increasing traffic • Strong bargaining power as one of the largest independent ISPs leasing fibers Costs • Mainly related to circuit-borrowing, network equipment, DC-borrowing, operations, personnel & outsourcing • While constantly expanding the network, costs barely increase 6 6
Business Model: Cross-selling of Network Solutions Revenues by Customer Increase revenues Systems per customer Construction e.g. Large scale EC system, Internet Disaster recovery system, Security gateway system etc. Connectivity & WAN Over 8,500 Number of Customers Client Base Outsourcing & Systems Operation • Dedicated line connectivity Outsourcing services include: IP service (cover over Gbps) • Security-related services (managed-FW and IPS, DDoS protection, URL filtering, anti-spam etc.) IPv6 service • Data center-related services (housing, facility management and operation) • Broadband connectivity • Server-related services (E-mail services, web hosting, online storage, CDN etc.) Optical Fiber/ADSL • Network-related services (network management and monitoring, VPN, SEIL, SMF etc.) • Mobile connectivity (IIJ Mobile) • IIJ GIO Hosting Package Services (18.2% of FY14 Cloud-related revenues) LTE/3G Systems operation includes: • WAN services Wide area Ethernet/VPN • Operation and maintenance of a system constructed in Systems Construction Global WAN • IIJ GIO Component Services (81.8% of FY14 Cloud-related revenues) 7 7
Excellent Blue-chip Client Base High Market Penetration towards Top Tiers 10/10 10/10 9/10 Electronic Precision Construction appliances equipment 8/10 9/10 9/10 Information/ Machinery Securities Telecommunications 7/10 9/10 7/10 Banks Wholesale Insurance The number of clients among the top 10 companies in each industry. 8 8 8
Revenue Composition by Clients Largest customer’s revenue is less than 3% of the total revenue Much room to increase revenue per customer Revenue Distribution by Revenue Distribution by Industry Clients Source: IIJ’s FY2014 financial results 9 9
Competitive Advantages IIJ can offer NW, Cloud, SI, and MVNO all at once Cloud Computing Services Carriers Systems Integrators Internet Connectivity Services Network Integration Outsourcing Services Systems Operation WAN Services Private Cloud Telephone Mainframe Legacy Network Services Legacy Systems Operation IIJ… IIJ… has many highly skilled network engineers operates its own backbone network corresponds to the Internet market rapidly develops network services in-housed focuses on enterprises targets new IT market, not legacy SI has an established brand among blue-chips has long and rich experience in server operation has flat organization structure has moderate number of employees 10 10 10
Best Positioned in Cloud Market Target Private Cloud market with Public Cloud infrastructure One of the first Cloud providers (2009) Offer public Cloud infrastructure : forefront investment in servers, storages, datacenters etc. Service Cloud-related CAPEX: FY13 JPY3.7 billion Promote Cloud shift of blue-chips by continuously expanding service lineup s Features Microsoft Azure, VMware Hypervisor, SAP Basic, IBM AS400, Oracle Database and many more Aggressively investing in new service and solution development (BigData, M2M etc.) Target large business enterprises’ internal IT systems , which are traditionally covered by SIers Leverage blue-chip customer base : IIJ GIO user: 1,260, IIJ group customer: 8,500 Growth Chosen for reliable connectivity and skilled operation for network and system Strategy Meeting growing corporate needs of large-scale NW systems with SI, Cloud, MVNO and NW services Some advanced integrated cloud usages among primitive and simple system purposes IIJ GIO’s Competitive Advantages Private Cloud Market Growth in Japan JPY1.4 trillion Skilled Competitive 3 times Systems and pricing with Covering wide Network container DCs range of operation corporate needs with SI, JPY462.7 billion MVNO, and Value-added Blue-chip NW services service Customer Base development Source: IDC Japan, Sep. 2014, Private Cloud Market 11 11
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