Wolfson to wow City with strong profits and higher spending on research

Published on Sunday 29 February 2004 00:00

WOLFSON Microelectronics will tomorrow underline its credentials as one of the UK’s hottest technology companies when it unveils results at the very top end of stock market expectations.

Wolfson will post EBITDA (earnings before interest, tax, depreciation and amortisation) for 2003 of more than $15m.

The company, which makes chips for a host of manufacturers including Microsoft and Apple, will also unveil a significant hike in research and development spending and an improved product line-up. Turnover will come in at about $75m.

It will also make a bullish forecast for 2004, with a forecast that growth will continue at more than 50%.

In a recent research note, Panmure Gordon said: "Wolfson is well positioned in the complex, mixed-signal semiconductor market. We await the 2003 numbers in March for a possible reason to upgrade [our recommendation]."

Wolfson has benefited from a boom in demand in the last year for its consumer electronics devices, such as Apple’s iPod music player and the XBox games console.

But tomorrow’s results - the company’s first annual figures since it debuted on the stock market last year - will beat all forecasts, turning Wolfson into one of the City’s favourite technology companies.

Although it trades in dollars, Wolfson is not affected by the weakness in the greenback as it has sufficient sterling reserves to pay for the development of its new headquarters in Edinburgh.

Wolfson is locked in a legal dispute with US rival Cirrus, which claims it infringed 15 of its patents. The company is expected to say tomorrow that the legal battle is ongoing, with no signs of any compromise agreement being reached. The case is not expected to go to court before the end of 2004 at the earliest.

Panmure Gordon said the patent infringement issue would reappear during the next year and could have a short-term negative impact on Wolfson’s share price.

It said: "The semiconductor industry has always been, and will continue to be, litigious, especially in the US, and it is an additional risk that investors should be wary of."

The City broker has a price target of 320p on Wolfson’s shares. On Friday the stock closed up 2.51%, or 8p, at 312p, as rumours of a positive results announcement circulated through the City.

Earlier this month the Edinburgh chip maker unveiled its first customer for a new suite of devices that it has created to break into the growing market for multimedia mobile phones.

It is supplying its WM9705 chip to the Treo 600, a new gadget from California-based PalmOne, the latest firm to combine a digital organiser with a traditional mobile phone.

The chip combines touch-panel and audio capabilities, which means that PalmOne can eliminate an additional component, in turn lowering the device’s manufacturing costs and power consumption.

PalmOne, which took over rival Handspring last year, has a dominant position in the market for handheld computers, but is investing more in the high-growth area of mobile phones.