Late Wednesday, Internet Initiative Japan Inc. (IIJI), a Japan-based provider of Internet connectivity and network solutions, reported a net loss for the third quarter compared to a profit in the year-ago period. Revenues for the latest quarter declined 5% from a year ago. The results for the quarter also include foreign exchange losses and loss on write-downs of investments. The company slashed its financial outlook for fiscal year 2008 for the second time this year, citing lower one-time revenues from its systems integration business due to the further deterioration in the Japanese economy
Internet Initiative Japan, or IIJ's net loss for the third quarter was 13.23 million yen, or US$0.15 million, compared to net income of 610.59 million yen in the year-ago quarter.
Total revenues for the third quarter were 17.54 billion yen, or US$193.14 million, down from 18.36 billion yen in the year-ago quarter.
Connectivity and Outsourcing revenues for the quarter increased 11.1% to 8.94 billion yen, while SI revenues declined 15.4% to 8.39 billion yen. Equipment sales dropped 49.4% to 201 million yen. Revenues from the company's ATM Operations business for the latest quarter were 6 million yen.
Operating income for the quarter was 838.9 million yen, down 26.2% from 1.14 billion yen a year ago. In dollar terms, operating income for the latest quarter was $9.24 million.
During the quarter, the company recorded a foreign exchange loss of 13.53 million yen, compared to foreign exchange gains of 1.41 million yen in the year-ago period. Losses on write-down of other investments for the quarter were 268.12 million yen, compared to losses on write-down of 20.22 million yen a year ago.
For the nine-month period, the company's net income was 354.32 million yen or US$3.90 million, down sharply from 4.09 billion yen a year ago. In yen terms, profit for the nine-month period fell 91.3% from the year-ago period.
The results for the latest period were largely affected by deferred tax expense of 972 million yen, compared to deferred tax benefit of 1.79 billion yen for the prior-year period.
Total revenue for the nine months increased to 50.79 billion yen, or US$559.41 million, from 48.35 billion yen in the previous-year period.
The company noted that recurring revenues, which account for 79% of its total revenues, increased 16.3% from the prior-year period.
Operating income for the nine-month period was 1.84 billion yen, down 37.5% from 2.95 billion yen in the same period last year. The decline in operating income was due to lower gross margin from systems construction, higher SG&A expenses and R&D, and operating loss from the company's four new subsidiaries.
As of December 31, 2008, order backlog for SI and equipment sales were 13.54 billion yen, down 16.6% from 16.24 billion yen a year ago. Looking ahead, Internet Initiative Japan lowered its outlook for fiscal 2008 financial targets, saying the one-time revenues from systems construction will be affected by further tightening SI investments from the third quarter. The outlook takes into account the amount of SI order received in the third quarter and the order backlogs as of December 31, 2008.
Koichi Suzuki, President and CEO of IIJ said, "The situation for systems construction was not as strong as we had initially anticipated. Many projects are being either postponed or delayed due to the tightened SI investments by Japanese companies, and as a result has affected our revenue and income growth."
Suzuki added, "Because the recovery for SI investments depends strongly on economic recovery, and as SI order backlogs are weak, we have revised downward our Full FY2008 financial targets for the second time this year."'
For fiscal year 2008, the company now forecasts net income of 1.30 billion yen, down sharply from its prior forecast for net income of 2.80 billion yen. In the prior year, the company had reported net income of 5.18 billion yen. The company noted that deferred tax benefit expected in the fourth quarter of fiscal year 2008 will decrease by approximately 400 million yen, reflecting the result of income before income tax expenses for the nine months ended December 31, 2008.
The company also lowered its forecast for full-year revenues to 69.3 billion yen from the previous outlook of 73 billion yen, citing lower one-time revenues from systems construction. The company recorded revenues of 66.84 billion yen in the prior year.
Operating income for the year is now forecast by the company to be 2.80 billion yen, compared to 3.80 billion yen earlier. The company's operating income for fiscal year 2007 was 4.76 billion yen.
The company also said it was unlikely to achieve its initial target for the mid-term financial target announced in May 2008, due to the decline in systems integration revenues. According to the company, it was approximately one year behind its expected mid-term target. However, the company added that timing of achieving its mid-term target depended strongly on the Japanese economy's recovery.
IIJ targets its mid-term target beginning from FY2008 to achieve over 100 billion yen in revenues and 10 billion yen in operating income by March 2011.
IIJI closed Wednesday's regular trading session on the Nasdaq at $2.40, up $0.04 or 1.69% on a volume of 9,000 shares.
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