US Edition Wolfson Microelectronics
125p-5
Questor says SELL
THERE were not many good vibrations coming from yesterday’s fourth-quarter trading update at audio microchip designer Wolfson Microelectronics.
The company said full-year revenue was flat at $179m (£110m) after a weak second-half performance. Annual operating losses widened to $20.3m from a loss of $9.3m the year before, sending shares sliding more than 10pc mid-day.
The group, which makes chips that create sound and detect voices in smartphones and other electronic devices, posted an operating loss of $8.5m during the final quarter to December 29, compared with a $500,000 profit the same time a year earlier. Revenue for the quarter fell to $42.0m from $56.1m a year earlier.
Chief executive Mike Hickey said: “Overall, looking back on a year where we anticipated strong growth, we were disappointed with full-year revenue that ended flat year-on-year, with strong sales in the first half being offset by a weaker second-half performance.
“This was caused by a faster-than-anticipated transition from 3G to 4G (LTE) smartphones, which benefited a competitor that was also the dominant supplier of the LTE platforms deployed in 2013, and a very volatile end market environment.”
The risk to investors now is that the company is pinning its hopes on a strong performance in the second half, which is far from certain. The company disappointed with guidance for sales in the first three months of the year which was short of expectations due to customers already holding too much stock and not placing new orders.
The shares could still have further to fall. Consensus estimates are for $202m in revenue, pre-tax profits of $4.8m, giving earnings per share of 5c (3.14p). That means the shares are trading on 41 times forecast earnings, falling to 14 times next year.
The company is also leaking cash with a free cash outflow of $20.4m in the last year that meant cash balances reduced from $48m to $26m by December 29.
Things could turn around very quickly for Wolfson if it wins a big new order and, while that is possible, there is too much risk the company continues to suffer from prevailing trends. Sell.