Join our community of smart investors

Weak smartphone market forces Laird into profit warning

The electronic components group says a slow mobile device cycle and pricing pressures mean its expected profits will be significantly below last year's
Weak smartphone market forces Laird into profit warning

Slower-than-expected production for mobile devices and "unprecedented pricing pressures" forced electronic components company Laird (LRD) to issue a major profit warning, and its shares nearly halved in value as a result.

IC TIP: Hold at 169p

The performance materials division, which generates more than 60 per cent of Laird's revenue, did not recover after a weak first-half performance as an expected increase in production of mobile devices did not transpire. Not only that, the group also said visibility on volumes "remains poor".

Analysts at Numis put their 'buy' recommendation under review due to fears the issue is as much to do with the company as weakness in one of its key markets. Underlying sales dropped 5 per cent year on year in the performance materials business, which Numis called "very disappointing" given the weak comparator and the expected benefit from its involvement in Apple's iPhone 7.

"The poor performance is attributed to a much slower production ramp-up, pricing and margin pressures and the overall lack of visibility in the mobile devices market," Numis said.

"This is in marked contrast to recent newsflow which has suggested end demand for the iPhone 7 is likely tracking a little ahead of expectations (which has benefited other Apple suppliers). This suggests that the structural positioning of Laird within Apple has changed, most likely due to stronger competition."

Laird said adjusted pre-tax profit is now expected to come in at £50m for 2016, compared with £73.1m in 2015.

It said its focus is now being turned to managing costs and cash across the group, something that will be key given Numis estimates net debt will be 3.2 times cash profits - not far away from the 3.5 times covenant limit.

Its wireless systems division saw organic revenue on a constant currency basis drop by 3 per cent due to challenges in its wireless automation and controls business. The rest of the division saw sales grow and its Novero business, which it acquired earlier this year, remains on track. But at the half-year results in July, the group said issues it discovered during its due diligence of Novero required "greater and deeper intervention to fully resolve".