Wolfson likely to fall prey to buyer if chips stay down for firm, says analyst

Published on 25/10/2008 15:19

WOLFSON Microelectronics, one of Scotland's technology stars, may have to find a buyer if investor confidence continues to falter, a technology analyst has warned.

Questions are being asked as the Edinburgh University spin-out, that made its name as a supplier to Apple, prepares to post third quarter revenues of $59m (37m) tomorrow.

Wolfson's share price has tumbled by 66% since the beginning of the year, and Nick James, analyst at Panmure Gordon, expects management will soon have to give in to a sale if efforts to boost investor sentiment continue to fail.

The company issued a profit warning earlier this month after experiencing a "material reduction" in orders as a result of falling consumer demand for electronic devices such as satellite navigation systems and computer consoles.

It said revenues for the final quarter of the year are likely to come in between $45m and $50m, well below analyst expectations of $59m.

James said in a recent note that although the firm has the potential to return to growth,

"in the event investor sentiment to Wolfson cannot be reversed, we believe it is most likely the company will be sold."

Wolfson has experienced a turbulent year. In March it was forced to reveal it had lost a "major customer", which analysts pinpointed as Apple. Although the company continues to supply chips for Apple's iPhone, it lost contracts to supply the new generation of Apple iPods. Four months later, the company admitted it was "tightening its belt a notch" and slashed jobs at its headquarters in Gorgie. Dave Shrigley, the company's American chief executive who announced he is returning to the US for family reasons last month, was also forced to abandon targets to top 2007 revenues of 231m.

The company has recruited Motorola executive Mike Hickey to take over the reins from January but Wolfson's share price has failed to recover to anywhere near the 207p level it hit at the beginning of the year. Shares closed at 70p on Friday, having made a marginal 0.36% gain on the previous week after management on Thursday bought back 15,000 shares from JPMorgan Cazenove for cancellation.

"Investors have worried over the impact of macroeconomic weakness continuing well into 2009, and the potential that Wolfson could sustain further design losses on top of those from this year," James said.