March 27, 2008 2:23 pm

Wolfson plunges on iPod blow

Shares in Wolfson Microelectronics lost a quarter of their value on Thursday after it emerged the company had not been picked to supply audio chips to the next generation of Apple iPods.

Shares in Wolfson tumbled 35½p to 106½p, their lowest level for more than three years.

The shares have already lost more than 60 per cent of their value over the past year on concerns that an economic slowdown will lead to lower sales of the consumer gadgets Wolfson makes chips for. The company last month admitted it had lowered its internal forecasts for 2008 because of the economic climate. Analysts at Citigroup downgraded the stock to “hold” from “buy”.

Wolfson declined to name officially the customer it had lost the contract with but people close to the company confirmed it was Apple.

The products are understood to be the new versions of the iPod Nano and iPod Touch, which are due to be launched in the third quarter. Wolfson will, however, continue to supply chips for Apple’s iPhone handset.

The move will hit Wolfson’s second-half revenues. Apple is Wolfson’s largest customer, with Citigroup estimating that it accounted for $41m, or 18 per cent of revenues in 2007. Of this, $35m is estimated to have come from iPod-related sales, and $6m from the iPhone, which was launched last summer.

This is the second time Wolfson has been dropped from Apple products, after losing the contract to supply audio chips to the iPod Classic last year. That contract went to Cirrus Logic of the US.

Wolfson said it would still hit market forecasts for 2008 revenues, as strong sales of chips for handsets and GPS systems would help offset lost MP3 player sales. Forecasts are for sales of $250m.

It confirmed its guidance for first-quarter revenues of $44m-$48m.

Wolfson’s chips are used in around 90 per cent of the world’s portable music players, but the company has been working to diversify. Revenue from other applications grew by 22 per cent in 2007 and represented 76 per cent of the total £231m in sales it made during the year.

Sales to handset manufacturers, for example, rose 52 per cent in the fourth quarter of 2007 thanks to new deals with South Korea’s Samsung and LG. However, a deal with Nokia, the world’s largest handset manufacturer, has so far eluded the company.

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