Wolfson relying on hot chip to be No 1

Published on Saturday 2 February 2008 14:51

THE new management at Wolfson Microelectronics will come under pressure tomorrow to show that its latest product range can stave off any slowdown in demand for electronic gadgets.

Although the Edinburgh firm is expected to announce fourth quarter figures in line with or at the higher end of expectations, its guidance for sales in 2008 will be key amid worsening economic conditions.

"Wolfson was trading well at the beginning of the quarter so I don't think there will be any surprises in the figures, although if they are below the mid range of the guidance that could signify a rapid slowdown," said Landsbanki analyst Dan Ridsdale, who rates the shares a buy at current levels.

Revenues for the three months to the end of December are forecast to be in the range of 31m to 35m with sales for 2007 as a whole between 109m and 112m. Pre-tax profits are expected to be slightly down on the 21.7m achieved in 2006.

But with important customer Apple's recent steer on first-quarter trading suggesting that demand for consumer electronics was weakening, Ridsdale said he was looking for evidence of progress with Wolfson's AudioPlus products which offer better sound and extended battery life for portable gadgets.

Although Ridsdale is not expecting any earnings growth for this year because of general economic conditions, he believes things could start to pick up in 2009 if Wolfson's investment in new products delivers.

The final figures will be the first to be delivered by chief executive Dave Shrigley, who took over last March, and newly appointed chairman Michael Ruettgers and investors will be hoping for some positive news to lift the company's flagging share price which has halved in the past year.

Since reaching a high of 556p in May 2006 the shares have fallen steeply and prompted speculation that the company is vulnerable to a takeover.

Didier Scemama of ABN Amro believes that is the most likely outcome in the longer term, particularly given increasing competition in Wolfson's markets. He said: "It hasn't happened yet because they are too risky a proposition because of the competition and the risk of recession. The uncertainties are too big to be optimistic on the stock at the moment."

He believes the prospects for the sector as a whole in the coming months are worrying: "There is a high chance that the semi-conductor industry will say that demand has vanished when they start reporting in April. The majority of business in consumer electronics is on a very short-term basis and order levels can change very quickly."

Recent director buying at the firm suggests the board remains positive. In the months leading up to his recent departure as chairman, John Carey spent more than 600,000 to increase his stake. In November Shrigley also almost doubled his stake by buying 25,000 shares at 208p.

Wolfson's chips are used in devices including Apple's iPhone, DVD players, games consoles, digital radios and cameras and bluetooth headsets.