Chipmaker fails to cash in on iPad boom
WOLFSON Microelectronics is the government’s idea of a perfect British business. It is a manufacturer; it is high-tech; it is based in Scotland; and it was spun out of the University of Edinburgh. A business in the regions that actually makes stuff, all the while demonstrating the success of Britain’s education system. A great photo op for Vince Cable. There’s just one problem. It isn’t doing very well.
We’re constantly told that the market for smartphones and tablet computers is flourishing. But Wolfson – which makes sound chips for these devices – is most certainly not. Yesterday’s statement to the stock exchange contained several nasties besides the profit warning, but the upshot was clear: earnings will be all but wiped out by much lower-than-expected revenue growth.
Part of the problem is weak consumer spending. As well as making chips for tablets and smartphones, Wolfson manufactures components for TVs and hi-fis. As any manager of a Comet or Currys will know, demand for these kinds of products has collapsed.
Second, Wolfson is too reliant on a handful of customers. Problems at Blackberry maker RIM, which has been hit by a string of product delays, have caused significant harm to the chipmaker’s revenue. Crucially, it doesn’t do much business with Apple, which still represents a significant chunk of the market for tablets and, to a lesser degree, smartphones.
So, it makes things but can’t sell enough of them. It is high-tech, but Asian rivals offer kit that is almost as good for a fraction of the price. And it lacks the scale and diversification needed to cope with a rapidly changing technology industry.
The best shareholders can hope for now is a trade sale, probably from a foreign buyer attracted by the weak pound. That will raise a few eyebrows amongst politicians. Maybe it’s not such a perfect business after all.