Vodafone sees strong financial growth as smartphone sales soar

Vodafone has announced strong year-on-year financial figures, with profits for the year ending March 2011 up £800m on the previous year to £9.5bn.

Growth was fuelled by strong performance in several key areas, including data services which saw profits increase by 26.4 per cent to £5.1bn, no doubt helped by the rise in use of tablets like the iPad.

Emerging markets were also strong, with profits up 11.8 per cent, while enterprise sales in Europe rose by a modest 0.5 per cent, indicating that budgets for telecoms services are increasing.

Underpinning this was an increase in smartphone sales in Europe from 11.6 per cent to 18.7 per cent year on year, as consumers and employees continue to show huge demand for high-end devices.

Vodafone chief executive Vittorio Colao was upbeat about the figures, stating that the company is making strong progess in a number of areas.

"The past year has seen further strong performances in our key revenue growth areas of data, emerging markets and enterprise, and we have gained or held market share in most of our key markets," he said.

"Customers have adopted data services in increasing numbers, as smartphones proliferate and the tablet market begins to take off. We have continued to increase the penetration of smartphones into our customer base as these are a key driver of data adoption."

Emeka Obiodu, a senior analyst at Ovum, agreed that the results were encouraging, particularly given the economic circumstances of some nations in Europe, but warned that data use, the key area driving this growth, could prove troublesome over time.

"Vodafone may have made progress with smartphones and the strength of its networks, but the combination of these two will pose its biggest headache in the near future," he said.

"Smartphones and the data boom will pose a burden on Vodafone's network. Vodafone talked up how good its network is today, but the reality is that it cannot maintain this advantage for long without seriously eroding its profitability."

Obiodu also noted that, while there are future revenue areas that Vodafone could explore, they will not compensate for the necessary network upgrades to keep pace with the data explosion.

"Vodafone talks of the nice things it could do with data use - smartphones, mobile-to-mobile and near-field communications. While these things are good, they will not lead to a big leap in revenues. Instead, we expect revenues to bump along with low growth," he said.

"That is why streamlining costs for network improvement and LTE rollouts is a major challenge for Vodafone. The challenge will be to resolve the paradox of promoting greater data use while keeping network costs low."