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12 March 2004
Financial Times
An eye on new chip designs

New issues were pretty thin on the ground in 2003. But at least in Wolfson Microelectronics, the chip designer, there was one flotation that can be counted a resounding success.

Not only were Wolfson shares priced at the top of the suggested 155p-210p range, the issue moved to an immediate premium on the first day of trading in October, closing at 246 1/2p. Wolfson issued 32.9m shares (32.4 per cent of the share capital) and raised Pounds 69m.

The company was co-founded by David Milne, the current chief executive officer, and Jim Reid, the technical director, in 1984. Its headquarters are in Edinburgh, having emerged from the electronics institute of Edinburgh University. Wolfson's chips are designed to fit into a wide range of digital consumer products such as cameras, DVD players and video games consoles.

The flotation was not without incident. US technology group Cirrus Logic filed a writ alleging that Wolfson had infringed two of its patents.

The action caused the company to postpone the issue for a few days as it revised its prospectus. Wolfson said that the allegations were without merit and has since lodged a counter-claim in the California courts.

Legal costs related to the case totalled Dollars 700,000 last year.

Mr Milne was recognised as entrepreneur of the year in late November at a reception organised by the Entrepreneurial Exchange, a networking group for Scotland's business creators. In the same month the company reported rising sales in the second half of the year and added that the order book for the first quarter of 2004 was healthy.

In January this year, it launched a range of microchips for home cinemas and high-end DVD receivers designed to be more energy efficient than other chips. Wolfson hopes that the new range of devices will allow it to move into other product areas such as in-car stereos.

New products are constantly in Wolfson's pipeline: only last month, its touchscreen interface controller was named Best Consumer Combination Product in analogZONE's product of the year awards. According to the company, many of the 3G mobile phones appearing later this year will include Wolfson processors. One of its products enables high quality audio to be recorded along with video on phones.

On March 1, Wolfson announced results for the year ended December 31. Turnover more than doubled from Dollars 33.7m to Dollars 75.7m while pre-tax profits jumped from Dollars 3.6m to Dollars 12.5m. Diluted earnings per share rose to 9.24 cents from 2.57 cents, while Dollars 4.8m of net cash was generated, compared with Dollars 3.5m in the previous year. Expenditure on research and development rose to Dollars 9.4m from Dollars 4.9m.

Mr Milne says that "in 2004, we are continuing to see a healthy build-up of our first half order books and are excited by the interest customers are showing in our new products for multi-media mobile phones and digital cameras".

The criteria for the new company of the year award were that the winner should be a potential future company of the year. The winner had to have gone public in 2003 but should already have demonstrated that it possessed both growth and management qualities. It should have, in effect, served notice to the investing community that there is a formidable growth company in the making.


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