Cyberlinks Co., Ltd. provides cloud services primarily to the retail and government sectors. Because the company started offering cloud services when they were relatively unknown in Japan, it refers to them as “shared cloud” services. The company also operates Docomo stores, which sell smartphones and related products. Founded in Wakayama Prefecture in 1956, the company posted revenue of JPY13.2bn (+3.6% YoY) and recurring profit of JPY959mn (+0.7% YoY) in FY12/21. Cyberlinks has four segments: Distribution Cloud (30.4% of revenue, recurring profit margin of 14.1% in FY12/21), Government Cloud (46.5%, 9.7%), Trust (0.7%, recurring loss of JPY350mn), and Mobile Network (22.4%, 12.9%).
@rms ERP (cloud retail ERP system for supermarkets) is the core product of the Distribution Cloud segment. ERP systems offer comprehensive business processing features such as ordering/purchasing and accounts payable management, inventory management, and sales management. Peripheral systems such as automatic ordering, ledgers creation (revenue management by store or department), merchandising (analysis by product on identifying strong selling items and out-of-stock items), attendance management, and accounts/payroll/HR are offered as optional services.
Large supermarkets usually build their own ERP systems, outsourcing the work to system development companies. Small to mid-size supermarkets use Cyberlinks’ @rms ERP, Toshiba TEC Corporation’s (TSE Prime: 6588) RX-700, or develop their systems in-house. Japan has roughly 1,000 supermarket companies, of which around 130 use Cyberlinks’ @rms ERP. Supermarkets generally review their systems every five to seven years, giving rise to replacement demand.
In 2005, the company launched Japan’s first cloud service for retailers. As of December 2021, the number of stores using @rms ERP was 1,288 stores versus the total market of around 21,000 stores. @rms ERP mainly targets small and mid-size supermarkets with annual revenue of JPY30.0bn or less. Users pay an initial set-up fee and a monthly fee commensurate with the number of stores they operate. According to the company, a typical mid-size supermarket with 10 stores with annual revenue of around JPY10.0bn pays an initial set-up fee of JPY5.0mn and a monthly fee of JPY700,000?800,000. Users pay additional charges for peripheral services.
According to the company’s research and analysis, assuming that the cost of hardware, software, and labor for the initial setup of a supermarket ERP system is 100 when a company builds its own system (either in-house or through outsourcing), the cost for building a cloud-based system would be 87 and using Cyberlink’s cloud service 45. Similarly, assuming that the cost of operation and maintenance of the ERP system is 100 for a company’s own system, the cost is 81 for using a cloud-based system and 70 for using Cyberlink’s cloud service. Cyberlink’s cloud services help users to keep their costs down, but a drawback is that users must fit their business processes to the services that the company provides.
The Government Cloud segment provides services such as administrative information systems and regional disaster prevention systems mainly to local governments in Wakayama, Osaka, and Nara prefectures. The company was previously a distributor in Wakayama Prefecture for Matsushita Communication Industrial Co., Ltd. (now Panasonic Mobile Communications Co., Ltd.). Matsushita Communication Industrial’s sales policy was prefecture-based, which meant the company could not sell in other prefectures and distributors based in other prefectures could not sell in Wakayama Prefecture. Local governments also tend to order from local companies. Consequently, most users of the Government Cloud business are local governments in Wakayama Prefecture. The company extended its operations to Osaka and Nara prefectures when it made Minamiosaka Computing Center Co., Ltd. a consolidated subsidiary in October 2019.
The Government Cloud business’s administrative information system and regional disaster prevention system businesses engage in system development, operation, and maintenance work. The company also provides cloud services such as Clarinet (a school administration support service for elementary and junior high schools nationwide) and community medical collaboration platforms that link medical information of medical institutions during disaster or emergency situations.
Cloud services provided by the Distribution Cloud and Government Cloud businesses use four data centers (two owned by the company in Wakayama Prefecture and two rented centers in Tokyo and Osaka), which complement and back up each other. System failures at the company would cause serious issues for customers’ operations. The company has not had a single system failure causing a stoppage lasting 30 minutes or longer in the past five years.
The Trust segment, which the company sees as a growth area, provides a time stamping service for electronic data and ID authentication service based on My Number Card (Japan’s social security and tax number system). The business posted a recurring loss of JPY350mn in FY12/21, but targets recurring profit of JPY150mn in FY12/25.
The Mobile Network segment operates seven Docomo stores (NTT Docomo dealers) in Wakayama Prefecture. The company acts as a second-tier reseller, which signs up subscribers and sells smartphones based on a reseller agreement with CONEXIO Corporation (TSE Prime: 9422), a primary reseller for NTT Docomo, a consolidated subsidiary of Nippon Telephone and Telegraph Corp. (TSE Prime: 9432). The company had about 35% share among mobile phone sales companies in Wakayama Prefecture. Revenue and recurring profit per store were JPY423mn and JPY55mn, respectively. Revenue is affected by smartphone sales trends and recurring profit by the sales mix, as profit margins vary between smartphone manufacturers. Shared Research understands that the Mobile Network segment is a cash cow business that generates stable profits. The company regards the recurring portion of its revenue as a KPI. Recurring revenue is revenue earned on an ongoing basis such as information processing and maintenance fees for cloud services and some incentives related to mobile handset sales. The CAGR of recurring revenue is 12.2% in the past five years, and recurring revenue accounted for 50.5% of total revenue in FY12/21.
Shared Research inc, research report.