Samsung slowdown to hit Wolfson Microelectronics

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A SLOWDOWN in smartphone sales growth at Samsung is expected to take its toll on Wolfson Microelectronics when the Edinburgh-based component supplier unveils its second-quarter results this week.

On Friday, Samsung revealed a £650 million investment in its product development unit as the South Korean electronics giant comes under pressure from competitors.

Samsung and American rival Apple continue to dominate the high-end smartphone markets with their Galaxy and iPhone ranges.

Yet the two companies face increased competition at the lower-end of the market from Huawei Technologies and ZTE. Operating profits at Samsung jumped by 47.5 per cent year-on-year to hit a record £5.6 billion in the three months to 30 June.

But profits at its mobile phone division, which generates two-thirds of its total surplus, slipped by 3.5 per cent quarter-on-quarter, despite the launch of its flagship Galaxy S4 handset in late April, sparking concerns that growth may have stalled in the face of intense competition.

Wolfson – which was spun out from Edinburgh University in 1984 and floated on the stock market in 2003 – lists Samsung as its biggest client.

The component maker has enjoyed a resurgence in the mobile phone market thanks to its “audio hub” chips, which separate out the sound for smartphones from integrated boards on to standalone units, which commentators say deliver better quality.

Alexandra Jarvis, an analyst at Peel Hunt, said: “We expect the second-quarter results to be towards the lower end of the guidance range, with June impacted by the slowdown at Samsung. This is also likely to impact the third quarter, but the fourth quarter less so, because of minimum volume contracts.”

But Jarvis added: “It is the wrong time to give up on Wolfson in our view. It is only in the next couple of years that Wolfson really starts to benefit, as it takes audio slots from Qualcomm and as it diversifies into lower tiers of phones.”

Amit Harchandani, an analyst at joint house broker Citigroup, agreed: “We expect Wolfson to report second-quarter revenues close to the bottom of guidance range. ­Given growth in smartphones is likely to be driven at the low-end, we look forward to management’s thoughts on design wins with Asian or white-box vendors.”