24 March 2010


IQE rebounds by 46% to record £31.2m revenue in second-half 2009

For full-year 2009, epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK has reported revenue of £52.7m, down 12.9% on 2008’s £60.5m. However, the industry-wide inventory adjustments that led to first-half 2009 revenue of just £21.4m was followed by a strong recovery of 46% sequential growth to a record revenue of £31.2m in the second-half (up 3% on second-half 2008’s £30.3m).

The rapid destocking that began in fourth-quarter 2008 caused a severe reduction in volumes across all primary markets, says IQE. The impact continued into 2009, but started to ease towards the end of the first half. Demand normalized in July and continued strongly throughout the second half as IQE returned rapidly to high volumes. This was a significant achievement on the back of a major cost-reduction programs, comments chief executive Dr Drew Nelson. About 80% of revenue in full-year 2009 came from the wireless market, compared with 15% from optoelectronics and just 5% from silicon-based microelectronics.

Despite the lower volumes, full-year gross margin (before exceptional items) improved from 2008’s 19% to 22%, reflecting strong cost control and the benefit of improved efficiencies as a result of the restructuring in 2008.

“2009 was a year of strong progress against the group’s strategic, operational and financial objectives, despite the tough economic environment,” says Nelson.

High operational gearing and tight cost control delivered second-half earnings before interest, tax, depreciation and amortization (EBITDA) of £6.1m, so full-year EBITDA recovered to £8.1m (almost level with 2008’s £8.4m, before exceptional costs and cash flows relating to relocation and restructuring in 2008). Although still down on 2008’s £4m, operating profit of £3m was driven by £3.9m in second-half 2009 alone (up from £2.4m in second-half 2008), more than offsetting the £0.8m operating loss in first-half 2009.

Full-year capital expenditure was £1.4m, returning to normal maintenance levels after 2008’s £6.6m following the conclusion of 2008’s major capital investment program.

Strong operating cash flow and low capital expenditure contributed to a significant improvement in free cash flow (net cash flow before financing activities and debt service) from £0.7m in 2008 to £3.7m in 2009 (before exceptional items), as free-cash absorption of £1.3m in the first half was followed by free-cash generation of £5m in the second half. Net debt has been reduced from 2008’s £18.1m to £14.9m (including a reduction of £4.1m in second-half 2009).

“We demonstrated a high degree of operational and financial resilience through a challenging year,” says Nelson. “This positions us well to continue to grow our market share,” he adds.

Second-half 2009 operational highlights included:

  • fulfilling the goal of achieving qualification with all of the major wireless chip makers (putting IQE in a very strong position to continue to grow its market share organically and mitigating customer risk);
  • developing significant intellectual property (IP), including patents relating to solar power and advanced electronics; and
  • completing the acquisition of NanoGaN Ltd of Bath, UK, bringing patented IP (including proprietary nanocolumn technology for producing high-quality gallium nitride), accelerating progress in IQE’s technology roadmap for solid-state lighting (high-power LEDs for residential and commercial lighting) and blue/green laser applications (projection systems for mobile phones, digital cameras and office applications).

IQE continued investment in R&D throughout the downturn, points out Nelson, highlighting a rise from £1.5m in 2008 to £2.3m in 2009 in development expenditure, relating to the qualification of new wireless products and the development of new solar and GaN products. “We now have a product range that addresses almost all of the rapidly growing markets for compound semiconductor materials,” says Nelson.

“I am extremely pleased with our progress on developing intellectual property for the solar power and advanced electronics markets,” says Nelson. Such development activities are expected to generate increased sales as projects are completed in the near future. “These advances are keeping us at the forefront of emerging markets, and give me confidence that we will emerge as a clear leader as these markets move from development phase into production,” he adds.

“We continue to make excellent progress in our core wireless business, whilst at the same time are building an IP-rich advanced semiconductor ‘power house’ that is uniquely positioned to take advantage of the high-growth markets that are rapidly emerging in areas such as solid state lighting (SSL), concentrating photovoltaic (CPV) solar cells and consumer electronics,” believes Nelson. “We are confident that IQE is well positioned to achieve continued growth in sales in 2010.”

See related items:

IQE expects second-half 2009 revenue 45% up on first half

IQE completes NanoGaN acquisition

IQE sees sharp order pick up in May-June as destocking ends

IQE reports 20% growth in 2008, despite Q4 inventory reductions

See: IQE Company Profile

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