Wolfson 'will cut prices' in effort to fend off cheap rivals

Published on Thursday 4 September 2008 21:35

WOLFSON shares jumped yesterday after it emerged that the semiconductor group was planning to cut prices on some of its components to protect it from losing sales to cheaper rivals.

The Edinburgh-based firm is also said to have told an analyst that it is confident it will hit third-quarter sales targets.

Wolfson, which sells audio components used in millions of portable media players and mobile phones, has lost much of its value over the past two years through a slowdown in consumer spending and competition from rivals selling cheaper products.

Yesterday, Royal Bank of Scotland analyst Didier Scemama gave details of a meeting he had with Wolfson finance director Mark Cubitt this week, in which the company apparently admitted losing further sales to manufacturers of portable media players and satellite navigation systems because of aggressive price cutting from rivals such as Cirrus and Realtek.

Wolfson is planning to respond with "selective mark-downs" – price cuts – to defend sales to key customers.

The company has long been regarded as the leader in its field. But as the cost of consumer devices such as MP3 players falls, manufacturers inevitably seek cheaper components to maintain margins.

Scemama wrote in a note to clients yesterday: "We continue to believe that Wolfson's audio products remain best-in-class, but we believe that the gap between them and competitors has narrowed for some high-volume/maturing segments like PNDs (portable navigation devices] and PMPs (portable media players] where pricing is increasingly the only element of differentiation."

Wolfson said it would continue to seek sales in premium products through its "audio plus" components, which integrate sound and power management on a single chip, saving weight, power and size.

Scemama said that because there were "limited" signs of traction for the audio plus strategy he was concerned about Wolfson's margins in the short term. However, a rise in the dollar, the currency in which Wolfson generates all of its sales, should offset some margin pressure.

The meeting also revealed that Wolfson's current sales pattern was extremely lumpy, ranging from $2 million to $7m a week, as customers take a cautious view of the wider economy.

Despite the variance in sales, Wolfson said it was confident it would meet its sales target for the third quarter of $56m-$62m, based on strong sales of handsets from key customers such as Apple, Samsung and LG.

A spokesman for Wolfson said Cubitt and chief executive Dave Shrigley were unavailable, but he was not aware of any inaccuracy in the RBS note.

Shares in Wolfson closed 3.8 per cent higher at 123.5p.

BACKGROUND

WOLFSON, a spin-out of the University of Edinburgh, became the first major technology flotation since the dot-com collapse when it listed in London in 2003.

The firm makes semiconductors that turn digital signals into analogue sound. The quality of its products has seen them installed in many of the world's must-have consumer devices such as the Sony PSP, the Microsoft Xbox and, most notably, some of Apple's iPod and iPhone products.

A downturn in consumer electronics and customers opting to use cheaper products have seen its growth slow.