SoftBank rejects Musk default claim after $3.7B write-down

SoftBank Group booked a $3.7 billion write-down on power equipment it had reserved for U.S. AI data centers, according to second-quarter results released Tuesday, Nov. 10. The disclosure gives Elon Musk's charge last week that the company was "defaulting" on gas-turbine orders some partial support. A SoftBank subsidiary changed how it buys equipment and is ordering less than it had planned, but it is not breaking any contracts, MarketWatch News Corp ↘ 0.03% reported.morningstar.com

What the earnings showed

The charge came after a subsidiary called Silver Bands 7, which invests in infrastructure for U.S. AI data center projects including one in Pike County, Ohio, changed its procurement strategy. SoftBank has made $9.5 billion in advance payments for power projects so far. It took a $2.85 billion loss on non-refundable payments made to reserve capacity and another $880 million hit from contract changes and settlements, MarketWatch reported. After project needs changed, $6.6 billion of those payments stayed allocated to equipment for the PORTS-Pike development in Ohio and other projects, The Deep Dive reported. The subsidiary could receive rebates of up to $2.1 billion on future equipment purchases over the next 10 years, though SoftBank said the amounts have not been set.thedeepdive.ca+1

The write-down was the biggest single contributor to a quarterly net loss of about $7 billion, Investing.com reported.investing.com

SoftBank denies a default

Musk wrote on X on Friday, Nov. 6, that "SoftBank is defaulting on their turbine orders." He did not name a supplier, an order or any evidence, Yahoo Finance reported. When asked about the post at Tuesday's briefing, Chief Financial Officer Yoshimitsu Goto said, "We have no idea what kind of intention was that, but this is simply not correct at all. There is no such default." He added that the PORTS-Pike project was "making a good progress" and that SoftBank was not discussing downsizing it, according to Investing.com's transcript.finance.yahoo.com+1

Musk has often criticized SoftBank, a major investor in OpenAI, the company he unsuccessfully sued this year over its shift to a for-profit structure, MarketWatch noted.morningstar.com

Market reaction

SoftBank shares rose 14% in Tokyo after the results, even though the stock is down 29% over the past three months. SoftBank has named GE Vernova ↘ 6.99% as the turbine supplier for the Ohio project, MarketWatch reported. GE Vernova shares fell in morning trading in New York because the charge raised doubts about AI-driven demand for gas turbines. Analysts said the company could probably resell any cancelled production slots because turbines are in short supply worldwide, Investing.com reported.investing.com+1

Citi Citigroup Inc. ↘ 0.16% analyst Keiichi Yoneshima said SoftBank's quarterly results matter less because it is mainly an investment business, "however, we view the [600 billion yen] loss related to power generation equipment for US AI data center as negative," according to MarketWatch.morningstar.com