Delighted to see a Japanese executive reaching out to them, investors pushed Hikari shares up 30-fold, making Shigeta the world's fifth-richest man in 1999, according to Forbes magazine.
Now they're citing the 35-year-old college drop-out as someone who wowed them with inflated promises of his company's potential, and then stumbled when he started to believe his own hype. Hikari's failure to book an operating profit as expected underscored concern about whether Japan's Internet-related companies can deliver their promises.
The Sankei-Bloomberg Internet index, which surged more than seven-fold last year, is down by more than half since its peak in March.
"We're too scared to buy companies simply on hope for the future," said Sadaji Shibata, general manager at Daiwa Asset Management Co, which handles 8 trillion yen (US$83.4 billion) in securities. "We want to see real numbers."
Japan's Internet frenzy began after the US's, but it more than matched its intensity. At its peak, Oracle Japan Corp's price-earnings ratio was six times its US parent's. Because demand for Internet-related shares outstripped the supply of such companies, gains in those with any link were amplified.
Mobilephone Telecommunications International Ltd, for instance, soared more than nine-fold in its trading debut last Oct 1. Shares of the company, whose 53 employees sell mobile phones through a direct marketing strategy, have dropped 93 percent from their peak on Jan 6.
As investors around the world now sort through the rubble, companies already making money or able to show they have enough cash on hand to stay in business are emerging as hidden gems.
Taiyo Yuden Co, which makes ceramic capacitors, is up 46 percent this year after beating its own full-year earnings forecast. The broad Topix index slid 12 percent in the same period. TDK Corp, Japan's largest maker of magnetic parts for hard disk drives, outperformed the Topix by 3.7 percent.
Euphoria
Japanese investors were eager to buy into the Internet story after a nine-year bear market in which the Nikkei 225 stock average shed two-thirds of its value.
Investment banks were also eager to sell investors the Internet story to ensure a cut for arranging share sales.
In April, Nikko Salomon Smith Barney helped Oracle Japan raise a near record US$7.5 billion by selling shares. While institutional investors shied away from the sale because of the price premium to the US parent's shares, individual investors put in orders for twice the number of shares on offer.
Thanks to the Nikko group's 127 nationwide branches, individuals took up more than half of the share sale.
As for Hikari Tsushin, it seemed to have a convincing story.
The company distributed cell phones made by carriers DDI Corp and Japan Telecom Co through its network of over 2000 franchise shops, helping to boost the number of cell phone subscribers past fixed-line users. In the year ended March 31, Hikari posted a 23 percent rise in handset sales.
Hikari also bought stakes in Internet ventures such as Crayfish Co, a Japanese e-mail service provider, and Pacific Century CyberWorks Ltd, Hong Kong's biggest Internet investment company, expecting the gains in their share prices to increase the value of its investments.
"Hikari was very good at marketing and spending very little money to take advantage of the growth in cellular phones in Japan," said Toshiho Sato, an analyst at Jardine Fleming Securities (Japan) Inc.
Collapse
Before long, though, a mobile Internet service offered by NTT DoCoMo that allows users to surf the Web and check their balances via DoCoMo cell phones began eating into Hikari's sales. Unfounded speculation that Shigeta was arrested for insider trading caused Hikari shares to start sliding.
To curb the decline, Shigeta hinted the company would beat earnings expectations. On March 30, Hikari said it would report a first-half operating loss of 13 billion yen (US$120.5 million) instead of the expected 6 billion yen (US$55.6 million) operating profit. Less than a month later, the company announced it would post a full-year operating loss. Hikari shares collapsed, falling their daily limit for all but one trading day in April.
At the same time, Shigeta's business model was unraveling. Yesterday, a Hikari phone subscription agent filed for bankruptcy after expanding too quickly, the third to go under in half a year.
Hikari's slide caused other Internet-related stocks to fall because individual investors, who had bought 31 times more shares with borrowed money than they sold at Hikari's peak on Feb 14, were forced to sell those holdings to meet demands from brokers calling back their loans.
"Stocks bought on margin only escalate the fall, and lots of people are getting margin calls," said Tyler Garratt, a research analyst at Skye Investment Advisors in Los Gatos, California.
Overcooked
Amid the sell-off, investors say there are still some stocks worth holding, such as Taiyo Yuden, TDK and Murata Manufacturing Co. Together, the trio controls 70 percent of the market for ceramic capacitors, which are used to regulate electricity in cell phone handsets.
Those companies stand to benefit directly from an increase in global handset sales, which are set to rise about a third in the year ending March 2001, said Etsuko Matsuoka, an analyst at UBS Warburg.
Others, like Rakuten Inc, the operator of Japan's largest Internet shopping mall, are attracting investors simply by making money. The company reported pretax profit gained 6.3 times in the three months ended March from the year before, and its stock doubled since it started trading last month.
"You want to make sure you don't throw the baby out with the bath water," said Barry Dargan, a managing director at MFS Investment Management, which handles about US$5 billion in Japanese equities.
As for Hikari, which was founded in 1988, it's become a cautionary tale of Japan's Internet bubble. Its shares crashed 97 percent from their peak and are setting new lows.
"The rise and fall of Hikari Tsushin was very dramatic," said Toru Ohara, a director at Tokyo Marine Asset Management Co, which handles US$7.7 billion in securities. "We're unlikely to see anything like it again for a long time."
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