Edinburgh-based microchip-maker Wolfson has announced plans to cut staff and abandon ageing product lines as it revealed continued losses amid instability in the global consumer electronics market.
It is thought around 10% of the almost 500-strong worldwide workforce will be let go as part of efforts to save $10 million a year.
Together with a write-down in the value of assets, executives said the cost-cutting would see an exceptional charge of around $4m during Q4, and also warned revenues would be at the lower end of expectations.
Wolfson said income in the third quarter, to the end of September, fell 17% year-on-year as customers held back on orders thanks to slow sales of electronic gadgets in the worldwide economic downturn.
Pre-tax losses in the quarter reached $3m, a turnaround on last year’s $1.6m profit, despite its major customers for its microphones and audio hubs including giants like Samsung and “most of the leading indigenous mobile phone manufacturers in China”.
Wolfson said it was responding by accelerating already-planned cuts to low growth and legacy markets. “The objective of this action is to reduce operating expenses and thereby bring the break-even point of the company to around current annual revenue and gross margin levels,” the firm said.
“This will provide a solid foundation to exploit the significant growth opportunities presented by a strong product portfolio, with increasing average selling prices, being adopted across a widening base of leading companies in high-growth markets.”
The Edinburgh University spin-out said its problems were exacerbated by stronger-than-expected take up of 4G-ready devices, which do not yet include Wolfson-designed components.
But it has high hopes for the first half of next year after completing 44 new design-in deals during Q3, and also agreeing terms with new customers including printer manufacturers, the un-named “large consumer electronics company” behind a new games console, and Asian manufacturers for car infotainment systems.
“We continue to see strong design-in traction across a wide base of customers,” chief executive Mike Hickey said.
“We are also very pleased with our progress in the fast-growing smartphone market in China.”
Analysts at house broker Citi questioned Wolfson’s ability to forecast demand, but said investors would welcome the cost- cutting plan and the increased profitability it promises. Amit Harchandani said the firm’s admission of Q4 revenues “trending towards” a low range return of around $40m was “disappointing”.
“The company more importantly announced a cost-reduction plan to reduce opex by $10m per annum, likely implying meaningful upgrades to consensus profitability estimates,” he added.
“Overall, the risk-reward seems incrementally improved, but we prefer to wait for consistent signs of a normalised supply chain before turning positive on the stock.”
business@thecourier.co.uk