‘Short-term headwinds’ are no worry for upbeat Wolfson

SHARES in Wolfson Microelectronics fell 3 per cent yesterday after the Edinburgh-based maker of components for electronic gadgets warned it was unlikely to return to profit until the second half of next year.

Chief executive Mike Hickey remained upbeat, telling The Scotsman the underlying business was strong despite the “short-term headwinds”.

Wolfson – which makes chips for a broad range of devices from mobile phones and tablet computers through to hi-fi systems and digital cameras – has been hit by the downturn in consumer demand.

Customers have delayed launching their latest models, which has had a knock-on affect on component makers.

Hickey said: “The new contracts, ‘design-ins’, we’ve been winning are helping to offset the downturn in consumer demand.

“We’re benefiting because the makers of mobile phones want to have separate components inside their products for producing the sound, giving higher-quality audio. That’s helping to combat lower demand for products such as cameras or printers.”

His comments came as Wolfson posted a 14 per cent year-on-year fall in third-quarter revenue to $40.4 million (£25.4m). It emphasised sales were still up 8 per cent in the year-to-date.

The firm swung to a third-quarter pre-tax loss of $10.1m – compared with a profit at this stage last year of $600,000 – after writing down $3.5m in restructuring costs and $3.5m on older products that customers had now decided were “obsolete”.

Wolfson cut its fourth-quarter turnover forecast to $35-40m, compared with analysts’ consensus expectations of $46.1m.

Shares closed down 3.2 per cent at 113.25p having fallen as low as 102.5p earlier in the session.

Ian Robertson, an analyst at stockbroker Seymour Pierce, highlighted contract wins from mobile phone makers LG, Samsung and Sony.

But Numis Securities analyst Nick James cut his target price to 120p from 160p, adding: “It is difficult to take much comfort from the design-in news as similar news from prior years has not translated into revenue growth and Wolfson struggles to make a profit.”

Wolfson, founded in 1984 as a spin out from Edinburgh University and listed on the stock market in 2003, made its name making audio chips, particular in the hi-fi market.

That expertise is now being put to use by developing a “high-definition” (HD) audio line of chips. Wolfson even launched its own brand of headphones – which has received favourable consumer reviews – to promote some of its latest technology.

Hickey said: “Demonstrating new chips in our own headphones brought in orders for the headphones themselves, which are then branded for other manufacturers, and for the components. It’s early days and we’re only selling them over the internet and through specialist retailers but we’re pleased so far.”