UPDATE 3-KDDI posts 27 pct gain in Q2 profit, keeps f'cast

*Q2 operating profit rises 27 percent to 138.5 billion yen

*Keeps forecast of Y443 bln vs Reuters Estimates’ Y463 bln

*To spend about $2 billion to buy back securitised property (Adds company comment, details)

TOKYO, Oct 22 (Reuters) - Japanese phone operator KDDI Corp 9433.T reported a 27 percent gain in quarterly profit on lower handset subsidies and kept its full-year forecast, underscoring its relatively stable earnings profile amid tough economic times.

KDDI, Japan's second-largest mobile phone carrier behind NTT DoCoMo 9437.T, also announced it would spend about $2 billion to buy back four buildings that it had securitised in 2001.

In June, KDDI followed mobile phone rivals DoCoMo and No. 3 ranked Softbank Corp 9984.T in introducing a new sales model that boosted the price customers pay for a handset in return for cheaper calling fees.

The higher price has depressed handset sales as users tend to hold on to their phones longer but has lifted carriers’ profits because they now pay much less in subsidies to retailers. DoCoMo and Softbank have also benefitted from the move.

KDDI’s rise in profit stands out as much of the rest of corporate Japan is busy cutting guidance due to a slowing global economy, high raw materials prices and a firmer yen.

KDDI president Tadashi Onodera said economic weakness has had little effect on the mobile industry in the past but voiced caution over the possible impact of the current financial crisis.

“This time it could have some kind of influence (on cellphone sales) because the economy is changing when the mobile penetration rate is high,” he told a news conference.

“Our experience tells us mobile usage normally does not get affected by the economic situation, but we can’t say so yet this time around because we don’t know how deep the trough will be.”

Shares in KDDI have fallen 19 percent over the past 6 months, outperforming a 36 percent drop in the Nikkei as investors looked to telecom stocks as a safer bet to weather the global financial turmoil and cloudy economic outlook.


KDDI, also the No. 2 fixed-line phone operator after Nippon Telegraph and Telephone 9432.T, said its operating profit came to 138.5 billion yen ($1.38 billion) in the July-September quarter, against a 108.7 billion yen profit a year earlier.

“The second-quarter results were better than I anticipated, more than making up for weakness in the first quarter,” said Shinji Moriyuki, a telecoms analyst at Mitsubishi UFJ Securities.

Analysts say the new business model should have a bigger contribution to KDDI’s profit from the current quarter because the company had been offering heavy discounts on previous models in the last few months to help clear out inventories.

The company stuck to its profit forecast of 443 billion yen for the year to March, which is below the market consensus of 463 billion yen in a poll of 16 analysts by Reuters Estimates. It said it is still assessing the impact of the planned property purchase.

KDDI is the first wireless carrier to report half-year earnings results. DoCoMo, Softbank, and fourth-ranked eAccess 9427.T will follow in the next three weeks.

Japanese cellphone operators for years paid hefty subsidies to attract users with almost-free handsets, but now they offer instalment payment plans that allow subscribers to pay off higher-priced phones over the course of two years or so.

In the United States, on the other hand, carriers are increasing incentives and pressuring profitability after AT&T T.N lowered the bar on discounts by helping to launch Apple Inc's AAPL.O latest iPhone at a lower price than the previous model in July. [ID:nLL677909]

KDDI expects handset unit sales to fall 9 percent to 14.4 million this business year, but the target is seen as high considering that sales dropped 34 percent in the second quarter.

Overall sales in July-September inched down 1.5 percent to 876.8 billion yen, hurt by lower income per user of its mobile phone services.

Before the announcement, KDDI shares closed down 5.9 percent at 525,000 yen. The Nikkei average .N225 fell 6.8 percent. (Additional reporting by Nathan Layne and Taiga Uranaka; Editing by Chris Gallagher)