Wolfson slumps on loss of Apple contracts

Wolfson Microelectronics saw nearly one fifth wiped off its share price yesterday following the admission it had lost key business supplier Apple.

Despite the chip manufacturer's assertion that growth will absorb the impact of the loss, the news its semiconductors will not be used in the iPod Nano and iPod Touch players due this autumn sent its shares plunging as much as 25 per cent and saw Citigroup analysts downgrade the stock from "buy" to "hold". The shares closed down 18 per cent.

Apple is Wolfson's largest customer, accounting for 18 per cent of last year's sales with contracts for its iPod and iPhone products. But Wolfson says its forecasts for the year will still be met, and confirmed first-quarter guidance of between $44m (£22m) and $48m.

"Revenue from applications other than portable media players grew by 22 per cent in 2007 and represented 76 per cent of the total," said the company. "Consequently, Wolfson expects the impact on revenues from the portable media player design loss to be mitigated by stronger than previously anticipated growth across its customer base and application areas."

The company has had a series of setbacks in recent months. Its shares have fallen 56 per cent in the past year. Financial results for 2007 showed operating profit down 10 per cent on 2006. And forecasts were lowered last month in response to concerns about the economic climate squeezing sales of electronics.

Mark Davies, an equity analyst at Panmure Gordon, said: "Wolfson says the losses will be offset by other areas, but, at this stage in the year, with issues around consumer confidence and very little visibility in the semiconductor market, believing the forecast that everything is going to be OK is a leap of faith."

Wolfson chips have already been dropped once by Apple when the deal for the iPod Classic went to the US manufacturer Cirrus Logic last year. But the fact the UK firm is holding on to the iPhone business offers a glimmer of hope. The iPod market is maturing, putting pressure on hardware prices, prompting some analysts to suggest it was the premium price of Wolfson's high-end chips that closed the door on the deal. In contrast, the iPhone is a high-end gadget in a new market, and it could ultimately cannibalise the music player's customer base.