7 September 2011

IQE’s first-half 2011 growth driven by smartphones and diversifying opto business 

Including £1.1m from US-based Galaxy Compound Semiconductors (acquired in September 2010), for first-half 2011 epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK has reported revenue of £38.3m, up 16% on £33m a year ago due to continued strong sales performance in key markets (with wireless up 14% and optoelectronics up 25%). However, on a constant currency basis, revenue grew 23% (19% organically), with wireless sales up 21% and optoelectronic sales up 32% (or 16% organically).

“The continued growth in demand for our wireless products driven by strong global smartphone adoption [and other mobile computing devices such as tablet PCs], coupled with increased revenues from our optoelectronic wafers, have enabled us to maintain our momentum in the first half of 2011 with a diversifying revenue stream,” says chief executive Dr Drew Nelson. “Our core wireless markets [comprising 75% of total sales] continue to grow rapidly whilst the new markets around energy efficiency and consumer communications are also developing well,” he adds.

IQE’s gallium arsenide (GaAs) based products are in most top-tier smartphones, yielding a broad customer base and growing market share (over 30%). The firm says that it is currently engaged in more than 20 new significant product qualifications. In addition, IQE has seen more than 100% growth in gallium nitride (GaN)-based high-power RF business, as well as significant growth in optoelectronics.

Significant organic growth has been driven by emerging technologies, including concentrator photovoltaic (CPV) solar, infrared materials and vertical-cavity surface-emitting lasers (VCSELs) for finger navigation and optical interconnects. In particular, infrared materials growth has been supported by the acquisition of Galaxy. IQE has also submitted several patent applications across a broad range of technology.

Gross margin was 22% (level with a year ago). Selling, general & administrative expenses rose by £0.8m from £4.6m to £5.4m. Nevertheless, despite the adverse impact of foreign currency exchange, earnings before interest, tax, depreciation and amortization (EBITDA) rose from £5.4m to £6.1m, down on second-half 2010’s £13.1m but up from £5.4m in first-half 2010. Operating profit rose from £2.7m to £3m. Cash inflow from operations rose from £1.9m to £5.9m.

Smartphones represent a fundamental structural shift in mobile communications and will still only account for 28% of the total handset marketplace in 2011, says IQE. Industry analysts predict continued growth in smartphone shipments for several years to come. In addition, the rapid roll-out of LTE and 4G communications in 2012 and beyond, and the proliferation of wireless applications (such as with smart meters and point-to-point communications) will add further demand for IQE’s wireless products, the firm reckons.

Demand for wireless products is also strongly supported by accelerating growth of optoelectronic devices across a range of new technologies and applications, including optical communications, finger navigation, lasers for projection, high-efficiency LEDs and CPV materials for solar energy generation.

“The end markets for our products continue to look attractive and offer sustainable high growth,” Nelson says. “Our overall upbeat outlook is tempered by recent growing uncertainty in the global economy. This has the potential to impact inventory levels downstream in the supply chain or of individual customers, although we have not seen any evidence of this at this time,” he notes. “Given IQE’s strategic positioning, the board remains confident of meeting current market expectations and of the group’s exciting longer-term growth prospects.” IQE is therefore continuing to invest in further production capacity to address growing demand in 2012 and beyond.

See related items:

IQE reports record revenue and higher-than-expected profit for 2010

IQE revenue grows 54% year-on-year to record £33m in first-half 2010

IQE expects first-half 2010 revenue up 50% year-on-year

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

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

See: IQE Company Profile

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Visit: www.iqep.com

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