Profit warning sends Wolfson shares sliding

SHARES in Wolfson, the Edinburgh-based audio chip maker, lost more than a quarter of their value yesterday after a slow-down in orders for smart-phone and tablet PC components led to a shock profits warning.

Analysts blamed delayed product launches at Research in Motion, the Canadian maker of Blackberry mobile phones, and a broader slow-down in consumer electronics, such as TVs, for Wolfson's woes. They also suggested the firm may have lost business from Samsung.

In a brief trading update, the Scottish firm warned that its second-quarter revenue prediction had fallen from a high of $45 million (28m) to $37-39m.

The company also forecast full-year turnover growth of 10-20 per cent, compared with previous City consensus of 30 per cent.

Wolfson chief executive Mike Hickey told The Scotsman: "Our customers have to be sensible about when they roll out new products because of reduced consumer spending.

"This is all part of a recovery story for us. We're still going to grow this year and we've got more exciting products being launched in the second half of this year."

Chief financial officer Mark Cubitt added: "It's a slow-down in orders from several customers, so it wouldn't be fair to just single out one of them."

Nick James, an analyst at Numis Securities, raised the spectre of a possible takeover bid for Wolfson because it "lacks scale".

He said: "Unfortunately, Wolfson is an example of what happens to a semiconductor business that lacks scale when its key categories come under pressure. It is a good example of the rationale for CSR buying Zoran to build a broader, more-sustainable business.

"We cut our target price to 200p from 250p, which would give an enterprise-value-to-revenue ratio of 1.6, which could be achievable on a trade sale."

But Hickey dismissed the suggestion that Wolfson was too small. He said: "We grew revenues by 30 per cent last year and 20 per cent during the first half of this year. We're the category leader when it comes to audio chips and that's not a small market."

Peel Hunt analyst Alex Jarvis warned that there would be a "significant impact" on Wolfson's profits during 2011 and placed his "buy" rating on the firm "under review".

He added: "The market was anticipating a weak second quarter and risks to second-half weighting but this is a poor result."

Ian Robertson, a hardware and equipment researcher at stockbroker Seymour Pierce, went further and cut his recommendation on Wolfson from "reduce" to "sell" and trimmed his target price from 212p to 175p.

Wolfson, founded in 1984, is a spin out from Edinburgh University and floated in 2003. Its products feature in hi-fi equipment, games consoles and video cameras. Shares closed down 26 per cent or 62p at 175p.