NeoMedia Technologies, Inc (NEOM)

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DD Vodafone issues profit warning
27 February 2006

http://www.telecoms.com/itmgcontent/tcoms/news/articles/20017338395.html

Vodafone on Monday warned that its assets are overvalued by as much as £28bn and that it is facing a slowdown in revenue growth.

Nearly £4bn was wiped off the value of the company as shares dropped by around 6 per cent in early trading which later picked up to level-off at 4 per cent lower, at 112.25p.

Vodafone's chief executive Arun Sarin, who has regularly courted speculation about his future at the helm, said he has no intention to step down.

The company said it would absorb a hit of between £23bn and £28bn, principally on its German unit following its takeover of Mannesmann in 2000.

It said it expects to take on a year-on-year decline in mobile earnings before interest, tax, depreciation and amortisation margins, excluding Japan, of about 1 per cent on an organic basis.

The drop, said the company, is because initiatives to cut costs had not been enough to offset pricing pressures and investment in customers along with regulatory changes.

Mark Newman, chief research officer at Informa Telecoms and Media, Telecoms.com's parent company, said: "This should come as little surprise to the industry. With its rapid diversification away from developed markets into developing ones Vodafone has been sending out signals for the last six months that its shifting its strategic focus. Vodafone's problem in Europe is that it finds itself in three of the most competitive markets. Both the UK and Italy have become intensely competitive over the last year following the launch of Hutchison Telecom's 3 service. And Germany , historically one of the most conservative markets in Europe is now seeing intense price competition from MVNOs."

Newman predicts things will also become increasingly difficult for Vodafone in Japan where there are only three current operators currently, soon to be joined by two new players. "If Vodafone could sell (in Japan) it would, but it cannot find a buyer," said Newman.

Ultimately, Newman believes Sarin must take responsibility for the company's woes particularly his questionable strategy in the emerging 3G market. "Despite reasonable success in terms of 3G handset sales the evidence so far is that few people are using 3G services. For now Vodafone is spending a lot of money subsidizing expensive 3G handsets but is not seeing the return in terms of higher ARPU."

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