BOOMING sales of the Apple iPod and Sony's new PlayStation Portable games console have sent profits soaring at Edinburgh technology firm Wolfson Microelectronics.
Wolfson chief executive David Milne is expected this week to announce to shareholders that profits have doubled - well ahead of City expectations.
Wolfson's shares rocketed 22.5p on Friday to close at 417.25p, a new high that values the company a
t £464m. The shares floated at 210p in 2003, meaning backers have almost doubled their investment in three years. They slumped to a low of 99p in October 2004.
Milne set out to crack the mobile gadget market two years ago, and that strategy is now generating rewards through multimillion-selling products such as the PSP and iPod.
Wolfson designs audio and video chips which are a key component in Sony's portable games console. Last week Sony revealed it had sold 6.2 million PSPs in the three months to Christmas, bringing total sales to 15 million.
That made up for slower-than-expected sales of Microsoft's new Xbox 360 console, which also contains Wolfson chips. Microsoft admitted last week that it had problems meeting demand for the console due to a shortage of components and cut its forecast for sales over the three months around Christmas from three million to 2.5 million.
The Edinburgh microchip designer is expected to reveal pre-tax profits of more than £17m for 2005, up from £8.5m the year before. Industry sources expect turnover to "comfortably" beat analysts' forecasts of £86m, up 30% from £67m the year before.
Wolfson also sells chips to TomTom, the Dutch-owned maker of in-car navigation systems. TomTom acquired Applied Generics, an Edinburgh traffic monitoring software company, this month.
Wolfson has bounced back from problems in the DVD player market which held back growth after it floated in 2003.
François Meunier, an analyst at Cazenove, said: "We believe Wolfson has strongly benefited from its exposure to key electronics products." Wolfson makes an estimated 15%-20% of its revenues from Apple products, including iPods.
But Meunier suggested the company should spend more on research and development: "Wolfson could budget for an increase in its operating expense in line with its revenue growth in order to diversify more rapidly its revenue base outside of the Apple iPod."
The company is expected to sell more of its chips to mobile phone makers as these devices gain new functions such as high quality music players and video displays. However, Meunier said: "Given the long lead time experienced in mobile phone design, this may not impact revenues before late 2007."
He said Wolfson faced stiff competition from the likes of Texas Instruments, the US microchip giant. And industry sources suggest Wolfson will not be involved in the next blockbuster games console, Sony's PlayStation 3, scheduled for launch this year. The chip for that console is likely to be made by Cirrus Logic.
Wolfson's 2005 results will benefit from the ending of a long legal battle with Cirrus which cost it around £2.3m in 2004.
