Vodafone cut its revenue outlook on Tuesday, knocking confidence in the telecoms sector and dragging down shares in European rival Telefonica and supplier Ericsson. The world's biggest mobile group by sales was hit by consumers delaying buying new phones, sending its shares to a 20-month low and wiping about 10 billion pounds ($20 billion) off its market value.
Ericsson reported better-than-expected results but these were overshadowed by Vodafone's warning of a tough economic outlook and the news reverberated throughout the sector, hitting Spain's Telefonica and others. "We are beginning to see an impact from the current economic environment which is greater than we expected," outgoing Vodafone Chief Executive Arun Sarin told investors and analysts on a conference call.
Collins Stewart analyst Mark James said telecoms companies had shown remarkable resilience to date to the macro-economic slowdown, but Vodafone had kicked off the telecoms results season with a reminder that nobody was immune. Dutch KPN, Norway's Telenor, Nordic operator TeliaSonera and Belgium's Mobistar and Belgacom are all due to report quarterly results later this week.
"This shatters the widespread perception that Vodafone will be defensive in a weakening economy," Investec analyst Jonathan Groocock said. "The Spanish and UK telecoms markets, resilient to the economic slowdown to date, finally look to have cracked."
The biggest single cause of Vodafone's woes was an unexpectedly sharp fall in the Spanish market, where large numbers of immigrant construction workers who had been Vodafone customers left the country as the housing market slowed.
Vodafone said it said seen smaller but similar effects in other countries and said it was hard to tell how much it had been hurt by the economy and how much by competition. "Clearly, both factors are there," said CEO-designate Vittorio Colao.
Vodafone shares fell 14.4 percent to 127.9 pence by 1051 GMT, pulling the European telecoms index shares down 7.8 percent. Telefonica shares fell 7.5 percent, Deutsche Telekom 6.4 percent and France Telecom 4.4 percent. Credit markets reacted with widening spreads. Telecom equipment maker Ericsson reported better-than-expected second-quarter earnings and reiterated it expected a flat mobile infrastructure market this year, but its shares could not escape Vodafone's pull and fell 8.3 percent.
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