Wolfson plunges on fresh iPod blow

WOLFSON Microelectronics' shares plunged close to an all-time low yesterday after the company admitted to a morale-crushing supply contract loss centred on the next generation of Apple products.

While Edinburgh-based Wolfson has never officially confirmed that Apple is its largest customer, its audio microchips have been installed in millions of iPods in recent years.

But it became clear yesterday that the next generation of Apple's Nano and iTouch products, expected to be launched in the autumn, will not contain Wolfson audio chips.

Wolfson said it had lost business from "a major customer" which sources confirmed was Apple. It is the latest in a series of blows for the firm, with Wolfson shares tumbling as much as 30 per cent on the news yesterday morning to 99p, flirting with an all-time low, before recovering to close down 18 per cent at 116.5p.

A spin-out from the University of Edinburgh, Wolfson has been seen as the undisputed star of Scotland's technology sector.

The first major technology flotation after the dotcom boom ended, Wolfson listed on the London Stock Exchange at the end of 2003. A series of exceptional results and a blossoming relationship with Apple saw its market valuation peak at almost £650 million in 2006.

But a series of problems in the wider semiconductor sector has seen Wolfson shed around 80 per cent of its value since its peak.

Wolfson, which also designs components for TomTom car navigation systems and flat-screen TVs, was forced to go defensive in an unscheduled trading statement, claiming its relationship with the major customer remained strong.

"Wolfson continues to have a strong relationship with this customer as an important supplier for its other high-growth product areas," it said.

The statement is a reference to Apple's iPhone product which still contains Wolfson chips. But analysts at Dresdner Kleinwort were questioning the entire relationship with Apple given the latest product loses, which followed a smaller loss of business from Apple last September.

"Apple has been responsible for the rise and fall of many chip suppliers in the past and today it has completed that cycle for Wolfson as well," the analysts said.

Dresdner cut its revenue forecasts for 2008 by 10 per cent to $219m.

But Wolfson denied the statement was a profit warning, claiming its guidance for revenue was unchanged. In January, Wolfson maintained that, despite ongoing problems in the wider market, it still anticipated overall growth in revenues.

Yesterday it maintained that line, claiming that growth from sales to manufacturers of the latest mobile phones, as well as digital cameras and gaming consoles, would offset the losses from the Apple blow.

Cazenove analyst François Meunier said the statement required investors to take a "leap of faith", with other revenues much less visible than those of Apple.

Wolfson's management refused to be interviewed yesterday, but a source sympathetic to the company claimed it was part of a business cycle for the group.

"Of course this is a blow to sentiment, but this is what happens to Wolfson; they move into cutting edge products then are designed out of them when those products become commodotised," the source said. "Then they move into new products, as they are with handsets."