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Wolfson Microelectronics narrows full-year losses

WOLFSON Microelectronics, the maker of chips for many of the world’s must-have electronic gadgets, sharply narrowed its 2010 losses, signalling that the Scottish company’s drive into the fast-growing smartphone, gaming and e-book sectors has set the firmly it on the road to recovery.

Mike Hickey, the Edinburgh-based company’s chief executive, yesterday also told The Herald he was “comfortable” with expectations that Wolfson would break back into a full-year profit by the end of 2011.

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The company, which in recent years has suffered from tough times in the electronics market and the loss of a major contract with Apple, yesterday posted pre-tax losses of $11.2 million (£6.9m) for the year to January 2, compared with a $14.8m loss for the 53 weeks to January 3, 2009.

However, revenues last year surged 30% to $157.3m, compared with $121.3m last time

The fact the company also reported an underlying operating profit of $1.3m for its fourth quarter – its second operating profit in a row – compared with $4.3m loss a year ago is also vindication of its diversification strategy.

A change in product mix and lower prices for volume orders has reduced Wolfson’s gross margin, but, at the same time, the company has enlarged its market.

Wolfson, whose chips are found in Samsung’s Galaxy S smartphone and Amazon’s Kindle ebook reader, noted that revenue growth in mobile phones was up 52%, smartphones were up 76%, gaming was up 130% and e-books were up nearly 400%.

The company, which was spun out of the Wolfson Institute at Edinburgh University in 1984, had a record year for design wins – new electronic products that contain its chips – and most of the 359 products would move into large-scale production in 2011.

Wolfson launched 30 new products during the year and said its Audio Hub architecture was gaining wide acceptance.

The company’s chips are best-known for tasks such as converting digital data into analogue signals for speakers and helping ensure even tiny systems can meet standards set by discerning listeners. They are the key components of the fast-growing number of portable communication devices.

Wolfson also provides the chips for DVD players, computer game consoles, Blu Ray players, e-book devices, satellite navigation systems, flatscreen TVs, laptops, tablet PCs and cameras.

Meanwhile, revenues for its WM8325 power-management system rose 163% for the year and was recently chosen by chip maker NIVIDIA as a partner technology for its Tegra 2super chips, regarded as industry standard for the next generation of smartphones and computing tablets.

Mr Hickey said: “The more devices that audio and media applications, the better it is for us. We are no longer dependent on one product. We are building business right across the consumer electronics sector.

“2010 was a very solid recovery year, and we have built up good growth momentum, especially in the second half, which continues into 2011.”

Design deals for devices such as the Kindle and the Barnes & Noble Nook, which is based on the Android platform, have helped the chipmaker compensate for the loss of Apple as its biggest customer last year – although its chips are still found in some older Apple iPods.

Asked if he expected the company to break back into the black by the end of 2011, he said: “That’s the expectation, and I’m comfortable with that.”

He also said the design wins meant he was confident of further revenue growth beyond 2011.

Wolfson added that it expected revenue for the first quarter of 2011 to be $38m and $44m.

Despite the upbeat sentiment yesterday, revenues came in below analyst expectations and shares slipped 4.23%, or 12p, to 272p.

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