Wolfson admits it was dropped by Apple after missing key deadlines

Published on Tuesday 9 February 2010 20:23

WOLFSON Microelectronics has revealed its damaging loss of business with technology giant Apple came after missing key product deadlines.

Announcing its first full-year loss since its 2003 flotation, the semiconductor maker said its engineering unit had become "constipated" in 2007 and 2008, after completing two acquisitions in short order and adding new functions to its products.

Edinburgh-based Wolfson, one of Scotland's leading technology companies, makes chips which convert digital signals into sound in consumer electronics devices. Its products are installed in millions of devices from mobile phones to Blu-Ray DVD players.

A University of Edinburgh spin-out, the company briefly had a market capitalisation of $1 billion (about 600 million) in 2006, driven by strong demand from its largest customer, iPod maker Apple, but the US company dumped Wolfson in 2008.

Referring to being dropped by Apple, finance director Mark Cubitt yesterday told analysts that the design loss came "after we missed a deadline".

After being dropped by Apple – a fact that Wolfson failed to reveal to the City until weeks later – Wolfson's former chief executive Dave Shrigley said the company had not been told why it was dropped.

Cubitt indicated Wolfson's problems stemmed from over-complication: "The danger with any engineering is you can over-engineer, but it doesn't matter how good your product is, if you've missed the date, you've missed the date."

Chief executive Mike Hickey, who joined a year ago, said the design side of the business – despite maintaining high quality – had become "constipated" in recent years. He said: "The company added power management (capabilities], it added two acquisitions, and it all just crunched a bit."

Yesterday Wolfson declared that the problems were behind it, with the engineering unit split into teams focusing on single product lines, and under pressure to meet schedules.

The number of products launched by Wolfson doubled in 2009, while its 250 "design wins" last year was about 100 more than in 2007 and 2008.

"We believe the product engine is fixed and we're growing again," Hickey said.

Wolfson revealed a $14.3m pre-tax loss for 2009. While the deficit was bigger than the City expected, shares surged after Wolfson said it generated $5.6m cash last year, more than in 2008. Revenue fell 39 per cent to $121.3m, mainly from the loss of sales to Apple.

While the number of new products using Wolfson chips has increased, many of these will not be launched until later this year.

Cubitt said the company was confident of returning to profitability in the second half of 2010. Wolfson shares rose 14.9 per cent to 137.25p.