Wolfson Microelectronics swung into the red and saw sales slump 46 per cent in the first quarter, as its consumer electronics manufacturer customers continued to suffer from the downturn.

The Edinburgh-based company, which supplies audio chips for devices such as Apple’s iPhone, cameras, and gaming consoles, as said market visibility continued to be poor and it faced pressure on pricing.

The company reported a pre-tax loss of £4.7m for the three months to April, compared with a £3.1m profit in the same period last year. Sales fell to $25.2m from $46.4m last time. The losses per share were 2.9 cents, compared with earnings of 1.9 cents last year.

Market expectations for Wolfson had been so low, however, that the results lifted shares in the company by 8 per cent to 121.50p in early trading.

There was positive news on smartphones, with revenues from this segment up 25 per cent at $11.9m. This is mainly due to Wolfson’s chips being included in popular products such as the iPhone, as well as handsets from Samsung and LG. Smartphones now account for 47 per cent of sales.

Sales of chips for flat panel TV’s, which account for around 11 per cent of sales, also rose 56 per cent after Wolfson won a contract with a large TV manufacturer.

Some analysts are concerned, however, that the smartphone boom may be short-lived, as Nokia, which does not use Wolfson chips - launches rival products later this year.

“We continue to believe there is risk that smartphone average sales prices come down later in 2009 and that there could be some disruptive new products entering the market (particularly from Nokia). This could put the non-Apple handset market position at risk,” said Nick James, analyst at Panmure Gordon.

Wolfson is responding to the downturn by keeping a tight control on costs. Research and development as well as administrative spending were both cut from last quarter. This helped the company build its cash balance to $97.8m, up from $81.2m last year.

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