Wolfson back in the black but shares hit by 'weak guidance'

Microchip maker Wolfson Microelectronics was back in the black yesterday, revealing a return to profit after more than two years, but was slammed by City analysts for "disappointing results and weak guidance".

• Wolfson boss Mike Hickey was upbeat over new contract win

Shares in the firm tumbled 5 per cent on a day when the rest of the stock market soared to a two-year high.

In a third-quarter update, the Edinburgh-based firm announced an underlying operating profit of $3.2 million (2m) and confirmed it had achieved a bottom-line profit. Revenues grew 33 per cent year-on-year to $47.1m although it admitted this was "constrained" by being unable to meet demand from its customers - makers of smartphones, e-book readers and games consoles.

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Mike Hickey, the chief executive of Wolfson, admitted the group "could have had more revenue - we had more orders than we could supply".

But analysts were furious at "vague" details on the supply problem provided by the management team in a conference call earlier in the morning.

Ian Robertson, an analyst with broker Seymour Pierce, said: "Today's disappointing results and weak guidance, together with the vague conference call, should act as a reminder that Wolfson is not master of its own destiny."

The broker put a "sell" order on the firm's stock.

It also poured scorn on the chip developer's announcement of a big win of a new client for 2011, which Robertson described as "the smartphone win that management refer to at every opportunity".

He speculated that the client win was either mobile phone maker HTC or Blackberry manufacturer RIM.

"It is far from clear that the end product or platform will be a success - neither HTC or RIM have a solid track record on this front," Robertson added.

Wolfson confirmed that its chips were in a number of key consumer electronics such as Microsoft's Xbox and its new Kinect controller, the Sony PSP, Amazon's e-book reader the Kindle, as well as smart phones for LG and Samsung.

Other brokers were more sanguine, citing the new business wins as "good news". But Alex Jarvis of KPB Peel Hunt said Wolfson revenues were at the bottom range of forecasts and noted that it had downgraded its full-year forecast.

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The chip-maker said it expected revenues for Q4 2010 to be in the range of $40m to $48m, driven by demand in smartphones, gaming and e-books.

The firm, whose audio chips also feature in several "high-end" hi-fi products, also said that it expected "some" gross margin decline in the final quarter but overall this would stay at 50 per cent which it estimated at the beginning of the year.

"In our product mix some have very good margins and some have less," said Hickey. "It depends on who orders what and we have had some adverse affects there."

Wolfson's management were particularly upbeat about prospects for 2011.Mark Cubbitt, finance director, said the first half of 2010 suffered a lull in revenues but that this would not be the case next year.

"In 2011 we will have a significantly stronger first half of 2011 than we did in 2010 and we are confident about the second half too."

Shares closed 12p, or 4.9 per cent, lower at 231.5p.