Wolfson Microelectronics has chips in Amazon's Kindle ebook reader

UK chipmaker's profit boosted by design wins

British chipmaker Wolfson Microelectronics continued to recover in the fourth quarter as its chips were designed into more products in the fast-growing smartphone, gaming and ebook sectors.

Wolfson, whose chips are in Samsung's Galaxy S smartphone and Amazon's Kindle ebook reader, reported underlying operating profit of $1.3 million, against a $4.3 million loss a year ago, on revenue up 67 percent to $46 million.

"2010 was a very solid recovery year, and we have built up good growth momentum, especially in the second half, which continues into 2011," chief executive Mike Hickey said. The group 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, he said.

"We are in the end-categories that are growing: smartphones, tablet PCs, ebooks and next generation gaming, like (Microsoft's) Kinect." The design wins meant he was confident of further revenue growth in 2011 and beyond, he said.

The group said it expected revenue for the first quarter of 2011 to be between $38 million and $44 million. However, Wolfson's gross margin was being hit by a supply-chain constraint on a high-selling product and would be around 47 percent in the quarter, below analysts' forecast.

"It was a single issue on a single product with a single supplier," Hickey said. "We will work our way through it and sort it out this quarter."

Analysts at Numis said the revenue outlook was better than expected but it was offset by weak gross margins and higher than expected operating expenditure. They said that Wolfson expected margins to recover, but the increasing exposure to handsets, where price/margin pressure is most intense, could lead to further unexpected pressures.

Shares in the group, which have more than doubled in the last 12 months, were 3.8 percent lower at 273.25 pence by 1045 GMT.

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