Wolfson Microelectronics - A direction for the future

Wolfson Microelectronics Plc is a designer and supplier of mixed-signal semiconductors and integrated circuits, used in audio, video, imaging, communications, and industrial applications. In recent years they have expanded their product range by offering power management chips which have been used in high-fidelity audio equipment. In addition, Wolfson's semiconductor products have become popular with the manufacturers of a number of consumer products, due to their high performance audio capabilities and yet, low power consumption (Wolfson Microelectronics, 2005a).

Business Model

Wolfson Microelectronics conform to the fabless business model (Wolfson Microelectronics, 2005b), meaning that the fabrication and manufacture of the company's silicon wafers is outsourced (Fabless, 2004). The result being, that the company themselves focus on the design and development of their products and channel much of their resources into the research and development of cutting edge, high-end audio chips.

This business model is also seen in other UK based electronics manufacturers, such as CSR who follow the fabless model in their design and development of wireless devices (CSR, 2005). A small but quite significant difference, however exists between Wolfson and ARM Holdings who fit a similar model, but instead of outsourcing the production of their reduced instruction set computing (RISC) microprocessors, they follow the license business model and sell licenses to use their intellectual property (Venture Navigator, 2007). This difference means that although both ARM and Wolfson's semiconductors can be found in similar devices, their markets are different. Instead of selling their products to chip manufacturing companies such as Intel and IBM (Venture Navigator, 2007), Wolfson must choose to market their products to consumer electronics manufacturers.

Corporate Structure

Wolfson currently employ 366 people (ICC Directory of UK Companies, 2009) across 12 locations worldwide, including sales and engineering offices located in the USA, Japan, China, Taiwan, Korea, Singapore and India, as well as their headquarters in Edinburgh, UK (Wolfson Microelectronics, 2005a). I feel that these locations were strategic choices based on the ability to provide technical information and support to potential customers in these specific areas. In addition, many of Wolfson's customers and competitors have offices in these locations, thus allowing them to strengthen relationships with clients and try to gain a competitive edge over other audio semiconductor manufacturers. Furthermore, as Wolfson exists in a heavily cost-sensitive market, the ability to reduce manufacturing and shipping costs by opening offices close to the fabrication facilities, that it is dependent on, is vital in enabling them to reducing their prices and increase sales. For example, in 2001 Wolfson announced their affiliation with SANYO, in a joint development scheme that would enable them to take advantage of SANYO's fabrication facilities (Wolfson Microelectronics, 2001). The fact that many of Wolfson and SANYO's facilities exist within the same locations worldwide (Singapore and Japan for example) would seem to be more than mere coincidence (Projector Central, 2009).

Market Value

Wolfson Microelectronic's market value currently stands at around £122 million, based on 115.1 million outstanding shares (Business Week, 2009) at 106p (London Stock Exchange, 2009). This represents a marked decrease of around 25%, from the company’s value of £162 million, 12 months ago. This is partly due to the reduced demand for consumer electronics, given the downturn in the World and UK economies, but also due to a number of other factors. The most significant of which, was the loss of Wolfson's contract with Apple, in 2008, resulting in their semiconductors not being used in Apple's latest range of iPods (Arnott, 2008). Furthermore, Wolfson were later imposed with a fine by the UK's finance regulator, for their delay in announcing the loss of the Apple order to their shareholders (Dennis, 2009).

The reason for losing this contract was never announced, but I would suggest that the reason why Apple chose to give their order to Cirrus Logic, a US based fabless microelectronics manufacturer, was partly due to the cost of Wolfson's high-end semiconductors (Arnott, 2008). I would therefore suggest that this is an indicator to Wolfson that there is an inconsistency between their marketing strategy and business goals. If indeed Wolfson sees the Apple contract as a key factor in their future, then possibly their goals should be realigned in order to develop smaller, more efficient and cheaper semiconductors, perhaps compromising the end quality. This would fit better with Apple's strategy to produce small, low power media devices, with less focus on sound quality, and would thus help Wolfson to regain a competitive edge over their competitors, and increasing their long-term sales opportunities in this sector. Focusing on more main-stream applications, as opposed to high-end, specialised features would also help them to increase sales, in a time when consumers are being more frugal than ever and making purchases based on value, rather than making more extravagant purchases (Business Strata, 2009).

References

Arnott, S. (2008). Wolfson slumps on loss of Apple contracts. Retrieved March 31, 2009, from
http://www.independent.co.uk/news/business/news/wolfson-slumps-on-loss-of-apple-contracts-801837.html

Business Strata. (2009). Research suggests value is increasingly important to consumers. Retrieved April 2, 2009, from
http://www.businessstrata.com/Win/News-Archive/Marketing-News/?storyId=42602&title=Research+suggests+value+is+increasingly+important+to+consumers

Business Week. (2009). Wolfson Microelectronics plc. Retrieved April 1, 2009, from
http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ric=WLF.L

CSR. (2005). CSR wins accolade from global Fabless Semiconductor Association peers. Retrieved April 2, 2009, from
http://www.csr.com/pr/pr219.htm

Dennis, T. (2009). Regulator spanks Wolfson over iPod shuffle. Retrieved March 30, 2009, from
http://www.theinquirer.net/inquirer/news/539/1050539/regulator-spanks-wolfson-ipod-shuffle

ICC Directory of UK Companies. (2009). Retrieved March 31, 2009, from
http://www.lexisnexis.com/uk/nexis/results/docview/docview.do?docLinkInd=true&risb=21_T6193264800&format=GNBFI&sort=BOOLEAN&startDocNo=1&resultsUrlKey=29_T6193264803&cisb=22_T6193264802&treeMax=true&treeWidth=0&selRCNodeID=5&nodeStateId=411en_GB,1,20,24&docsInCategory=24&csi=156401&docNo=6

London Stock Exchange. (2009). WLF Wolfson Microelectronics PLC.... Retrieved March 31, 2009, from
http://www.londonstockexchange.com/en-gb/pricesnews/prices/system/detailedprices.htm?sym=GB0033563130GBGBXSTMM3356313WLF

Projector Central. (2009). Sanyo Office Locations. Retrieved June 2, 2009, from
http://www.projectorcentral.com/Sanyo-locations.htm

Venture Navigator. (2007). ARM Case Study - Market Size. Retrieved April 2, 2009, from
http://www.venturenavigator.co.uk/content/16

Webopedia. (2004). Fabless. Retrieved March 30, 2009, from
http://www.webopedia.com/TERM/f/fabless.html

Wolfson Microelectronics. (2001). Press Release. Retrieved April 2, 2009, from
http://www.wolfsonmicro.com/whatsnew/press/press/PI44

Wolfson Microelectronics. (2005a). About Us. Retrieved March 28, 2009, from
http://www.wolfsonmicro.com/aboutus

Wolfson Microelectronics. (2005b). FAQs. Retrieved March 31, 2009, from
http://www.wolfsonmicro.com/investor/financial/faqs