Wolfson Microelectronics' shares fell 23 per cent as it revealed it had lost its contract to provide audio chips for a "tier 1 customer's" next generation of personal media players. Analysts believe the customer is Wolfson's key reference customer Apple, with the losses in the iPod Touch and Nano, following its apparent ousting from the older iPod Classic model last year.
Wolfson says that it still expects this year's revenues to be in line with market expectations of around $247m (£122m). The Edinburgh-based audio chip specialist is still believed to be in Apple's iPhone, which is seeing much faster growth - albeit in smaller volumes - than other iPods. Contracts with other music phone manufacturers, such as Samsung, and its new "AudioPlus" products may also make up the shortfall. "It would be difficult for Wolfson to compensate for the loss of its iPod revenues in the next two years," adds Janardan Menon at Dresdner Kleinwort. "There is also clearly a question mark on its [future] iPhone revenues as well."
The personal music player market is less important than it used to be for Wolfson, with its designs found in a wide range of other personal electronics devices, such as satellite navigation. But it is also relying increasingly on existing customers, and has played down expectations of new design wins. The on doubts about consumer electronics spending, with device makers seen as likely to make slower purchasing decisions or bargain harder on designs from the likes of Wolfson and .
"Wolfson is missing key socket wins in next-generation portable media, where device wins had been the bread and butter of this stock," says Jefferies analyst Lee Simpson. And he warns that more losses could follow: "Incumbent chip makers are often the last to know if they’ve lost a socket."
Wolfson should still show revenue growth in 2009, but only thanks to new products such as power management. "That means there's a lot of onus on new, virgin-territory products," says Mr Simpson. "None of them has a shipping record."
Dresdner's Mr Menon has cut his attributable profit forecast for 2008 to $20.2m (2006:$31.7m), giving EPS of 8.60p, rising to 9.88p in 2009. This represents a cut of 26 per cent in 2008 forecasts, and 35 per cent in 2009.
