Internet Initiative Japan Inc. Bank of America Merrill Lynch Japan Conference 2009 September 17, 2009 http://www.iij.ad.jp/en/IR TSE1:3774 NASDAQ:IIJI
Key Investment Highlights Top IP Engineering Company in Japan Target Blue-chip and Governmental Organizations in Japan with dominant position Best Positioned in the Growing Outsourcing Market in Japan Stable revenue growth from the accumulating recurring revenue Solid Growth Strategy details to follow 2
TOP IP Engineering Company in Japan The first established full-scale ISP in Japan A group of highly motivated and skilled TOP Level IP Engineers Pioneer of Network Technologies in Japan In-housed development Operate one of the largest Internet Backbone in Japan Fully develop its service and back office facilities • Internet Connectivity & Firewall Service, IP Multicast Delivery Service • IPv6 Service • NetBSD based Router Product Development (SEIL Series) “IIJ” brand among the Japanese IT market Well known for its high engineering skills and network support skills High customer Satisfaction with long term relationship Around 6,500 clients, mainly governmental and large enterprise At the leading edge of IP R&D Company Profile (as of June 2009) Established December 1992 IPv6, Mobile IPv6(MIPv6), NetBSD Number of Consolidated: 1,673 Distributed and Parallel Processing Platform Employees (approx 70% engineers) for very large data sets Listed NASDAQ(IIJI), TSE1(3774) Participation in world-wide research Markets Board Member of “Telecom-ISAC Japan” Large NTT(24.5%), Koichi Suzuki(6.2%), Shareholders Itochu Corp.(5.1%), NTTCom(4.9%) 3
Entrepreneur of Network Technologies Business and Service Development to Initiate the Market The first full-scale ISP in Japan Application Cloud Development IPTV Computing In-housed development Platform System Operation At leading edge of IP R&D Large Volume P to P Data Systems IP Specialists LaIT Distribution Integration RFID Internet GDX iBPS LAN Platform DC M to M Internet Web Managed VPN Gateway Service Anti-spam CDN Solution IP Multicast DDoS Consumer SEIL SMF MVNO IIJ ISP Wide hi-ho in U.S. Mobile LAN Asia Consumer Firewall Backbone Service IPv6 ISP IIJmio IX Hope Page Service Dial-up SLA service IIJ4U Web Hosting Service “IIJ Group” 1992 1995 1996 1997 1998 2004 2006 2007 2008 4
Strategic Shift in Business Model From “ISP” to “Total Network Solution Provider” (Revenue, JPY million) Internet Connectivity Services ENDURE Listed on Tough economic Outsourcing Service TSE1 situation Systems Operation 70,000 Systems Construction (Include Equipment Sales) (FY1997-FY2002 includes System Operation) 60,000 BLOOM Harvesting the NASDAQ flower of 50,000 IPO Total Network Solution Provider 40,000 Transition Change in Business 30,000 Model Birth 20,000 Earned its enduring Client Base Japanese Rapid Sudden 10,000 economy at Economic down turn in bottom Recovery economy 0 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 CWC filed for Rise in needs Merger of Increase in Heavy Price corporate for Cloud corporate ISPs number of ISPs Competition reorganization /Outsourcing 5
Recurring Business Model Cross Selling of Total Network Solutions • Application-related Development • Network-related Integration •Dedicated Line Connectivity On-line Security System Site-to-Site Network Construction IP Service (64kbps to over Gbps) Ticketing System Content Delivery Platform On-line Shopping System etc. etc. Email System for ISPs etc. •Broadband Connectivity Optical Fiber ADSL •Mobile Connectivity (IIJ Mobile) 3G/DSDPA Systems Construction Internet Connectivity Service Over 6,500 Outsourcing & Client Base Systems Operation •Network Related •Server Related •Security Related •Data Center Related Managed Router Service Web Hosting Service Managed Firewall Service Facility Management SMF-VPN Solution Email Service URL Filtering Service Operation etc. IIJ Internet-LAN Service etc. DNS Service DDoS Solution etc. •Customer Support File Exchange Service etc. 6
Excellent Blue-chip Client Base Enduring Relationship with Top Tiers leading companies 10/10 10/10 9/10 Electronic Electronic Information/ Information/ Wholesale Wholesale appliances appliances telecommunications telecommunications 9/10 8/10 8/10 Precision Precision Machinery Machinery Banks Banks Equipment Equipment 8/10 7/10 7/10 Ministry of Securities Securities Construction Construction Insurance Insurance Cabinet Office Ministry of Environment Justice Ministry of Internal Ministry of Land, Affairs and Infrastructure, Transport Communications and Tourism • The number of contracts we have among 10 major companies listed by annual consolidated revenue in each industry. Ministry of Ministry of Education, Culture, • Revenue data based on Toyo Keizai Shimpo “Kaisha Shikiho,” and Finance Sports, Science and Technology Nihon Keizai Shimbun “Nikkei Industry Map” 7 and more…
Diversified Client Base Revenue Distribution by Revenue Distribution by Industry Clients Others ISP/CATV ISP/CATV, 13% Others, 13.1% 9% 8.9% Top 501- Top 1-100 Government/ Top 501- 18% government communications Public sector /IT /public sector Top 401-500 9% 4% Top 401-500 52% of revenue from Top 301-400 Communication/IT T op 301-400 5% Machinery/ Top 1-100 Clients 28% Manufacturing machinery /manufacturing 7% Top 201-300 Top 201-300 7% Media/Service Financial financial 23% Top 101-200 sector, 10.5% sector Top 101-200 14% media/service 11% , 23.3% Source: IIJ’s non-consolidated data for FY2008 Source: IIJ’s consolidated data for FY2008 •Not dependent on specific company •Revenue by Top1 Client is less •Not dependent on specific industry than 4% 8
Solid Growth Model Revenues by Customer (JPY million) Customer Retention Strategy Increase revenue per customer Cross Selling of Services Provide high quality/reliable total network solution Introduce new services Increase recurring revenues for Stable revenues and profit growth Number of Customers (~6,500) • IT market growth to continue • Rise in demands from Outsourcing/Cloud Computing • IT spending is indispensable in the mid/long term 9
Market Environment Comparison of Japan-U.S. Internet Data Center change in real investment for Market Growth informatization FY2013 (1995=100) 10% Growth JPY 557 billion 450 (5years) FY2008 400 (billion yen) Japan USA JPY 347 billion 350 500 300 400 250 300 200 200 150 100 100 0 2008 2009 2010 2011 2012 2013 50 Co-location 1995 1997 1999 2001 2003 2005 2007 Source: IDC Japan (2009/8) hosting Source: Ministry of Internal Affairs and Communications (2009/7) IT Service “Survey on Economic Analysis of ICT” •According to government research, •From owning to using Japan are yet behind on IT investments •More companies are shifting their compared to the U.S. server equipment into data centers from corporate head quarters 10
FY2008 Results Summary & FY2009 Outlook FY2008 (Summary) FY2009 (Outlook) • Sudden Economic Down Turn • Weak Economy to continue Exterior • Halt in IT Investments in Japan • Weak IT investments in Japan Environment Demands for Outsourcing & Cloud Computing remain to continue Business Constantly Introducing new services and accelerate cross selling Operation • Good start for IIJ Mobile Recurring • Increased Gbps contracts • To increase the use of IIJ Mobile Solutions Business • Had irregular capital expenditure • Excessive outsourcing personnel (1H08) • Continue tight cost control from 1Q09 • Adopt resource/cost control from 2H08 SI • Target network-related SI • Small-sized network related SI projects Focus on growing new business New Business • Completed field test for ATMs operation • Boost the business startup of ATM with good results operation business • Steady increase in recurring revenues on plan (up 14.3% YoY) • Steady increase in recurring revenues on plan (up 14.3% YoY) • Weak SI construction revenues (down 18.7% YoY) • Weak SI construction revenues (down 18.7% YoY) FY2008 • Operating loss related to new business: ¥1.3 billion (¥0.2 billon in FY07) • Operating loss related to new business: ¥1.3 billion (¥0.2 billon in FY07) Results • Decrease in profitability in 1H08 due to the increase in personnel, although operating income for • Decrease in profitability in 1H08 due to the increase in personnel, although operating income for current business (exclude new business) improved in 2H08 as a result of tightened cost control current business (exclude new business) improved in 2H08 as a result of tightened cost control 11
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