Swing to 4G phones hits Wolfson as losses widen

The headquarters of Wolfson Microelectronics. Picture: submitted
The headquarters of Wolfson Microelectronics. Picture: submitted
Share this article
Have your say

Chip designer Wolfson Microelectronics unveiled a further fall in revenues today and warned that an expected turnaround driven by new technology will not happen for another six months.

The Edinburgh-based firm, which is famous for its audio chips, admitted it was caught by surprise last year by the faster-than-expected transition to 4G smartphones, also known as “LTE”, which benefited a competitor.

Sales figures were also hit by a collapse in orders from the firm’s second biggest customer, believed to have been Canadian phone maker BlackBerry.

Shares fell 3.9 per cent to close at 125p, but had been as low as 109p earlier in the day. Analysts, however, remained positive on the company’s prospects.

Revenues for the final quarter of 2013 came in at $42m (£26m), down from $56.1m a year before. Gross margins were slightly lower, at 42.2 per cent, pushing the firm to an operating loss of $8.5m, compared to a slim $500,000 profit in the final three months of 2012.

Full-year revenue was flat at $179.4m, with operating losses more than doubling to $20.3m.

The weak figures had been expected after the firm warned of a slowdown three months ago, but investors were disappointed by an outlook statement indicating that the first half of the current year will also be tough as customers are still holding too many of Wolfson’s chips.

The group said revenue growth is still expected this year, but it will be “heavily weighted to the second half” as customers launch products featuring its new “audio hubs”.

It also expects to benefit as new LTE platforms come to market that will not be reliant on a component from

Californian microelectronics giant Qualcomm, which includes its own audio feature and, therefore, leaves no niche for Wolfson.

The company is on track to deliver $10m in cost savings after phasing out some older “legacy” lines in a process that shed about 50 jobs, including contractors.

Chief executive Mike Hickey said it had been a disappointing year as the firm had initially anticipated strong growth.

But he added: “We expect to resume our growth trajectory in the second half of 2014 as customer phone inventories unwind; customers’ new products launch with Wolfson’s next generation, higher content audio hubs; and we benefit as new LTE platforms come to market.”

The firm has secured a $25m bank facility to support its anticipated growth, which Hickey said would be used to meet any spikes in demand as major customers roll out fresh products. The group is currently debt free and has about $48m in the bank.

The latest generation of audio chips made by Wolfson are so sensitive that they can be used to control electrical devices without touching them.

The technology is likely to be built into the next generation of mobile phones, tablet computers, in-car entertainment systems and even white goods.

Nick James, an analyst at Numis, said it was very difficult to forecast figures for Wolfson, but he expects 5 per cent revenue growth this year.

He added: “We still see significant strategic value in the business and believe that profitability will be transformed as soon as competitive dynamics in the baseband market normalise.

“With today’s drop, the stock looks very attractive, albeit a special situation.”