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Last updated: July 25, 2011 10:17 am
Shares in Wolfson Microelectronics fell more than 10 per cent on Monday, after the audio chipmaker lowered its full-year sales forecast for the second time in two months, saying sales would grow by less than 10 per cent due to weakening demand across a “wide base” of customers.
Last month Wolfson said that revenue growth would be 10-20 per cent, lower than the 32 per cent growth analysts had expected. Since then, there had been a “sharp reduction” in customers’ near-term sales expectations due to worries about the strength of the smartphone market.
“Basically, people are nervous about how much end-consumer demand there is,” said Mike Hickey, chief executive. “That end-consumer demand slowing has offset the wider customer base and new products that have come in.”
Wolfson has not reported a full-year profit since 2008, when it lost a contract to supply audio chips to Apple’s iPhone. Although it still supplies most other big smartphone-makers, it has been affected by recent problems at companies such as Research in Motion and Samsung.
Mark Cubitt, chief financial officer, said that cost cuts worth $6m a year, largely from the research and development budget, would probably ensure a profitable fourth quarter. However, the company no longer expected to turn a profit for the full year. “That’s going to be tough from where we are now ... I think it’s unlikely now,” he said.
Wolfson’s first-half results, published on Monday, showed an operating loss of $6.9m, improved from a loss of $10.9m in the prior year period. Revenue grew from $64.5m to $79.7m, as falling sales to the home entertainment sector offset rising sales of chips for mobile phones and tablets.
The company has blamed the downgraded expectations in part on delays to product launches by key customers. Analysts say the most damaging delays were to a model of Samsung’s Galaxy SII phone, and a new range of smartphones from RIM.
This contributed to a decline in gross margin from 51.3 per cent to 47.3 per cent in the first half. Analysts say that Wolfson needs to achieve a gross margin of 50 per cent to fund its research costs; it said the full year margin would be “around” that figure.
Wolfson emphasised its “strong design-in momentum”, with nearly 200 design wins in the first half: 17 per cent ahead of the 2010 rate. Mr Hickey said that the broader customer base would make Wolfson less vulnerable to problems at its major customers. It held high hopes for the fast-growing tablet device market, he added: sales in its PC and tablets division more than tripled in the period.
However, Andrej Krneta, an analyst at Jefferies, said that “weak consumer markets and key customer product push-outs may overshadow the design-win cycle that still appears intact”.
“Wolfson continues to see customer product delays and underlines the continued weakness in consumer end markets. Hence, the company’s outlook now seems uncertain,” he added.
The shares closed down 18.5p or 10.7 per cent at 155p. They have now lost more than half their value since hitting a peak of 314.75p in January.
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