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22 July 2014

IQE’s first-half revenue down 17% year-on-year to £52m, but profitability up

Epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK has provided a trading statement for the six months to end-June 2014. As indicated at the end of 2013, first-half revenues were impacted by destocking at a number of major customers (due to softness in the handset market at the end of 2013 and into the start of 2014) coupled with the strength of sterling (which also had an adverse translational effect). IQE hence expects first-half revenue of about £52m, down 17% on first-half 2013’s £63m. In constant currency, sales were down about 10%.

Although revenue was down, a combination of efficiency gains, economies of scale, and sales mix has improved profitability. IQE expects EBITDA (earnings before interest, taxes, depreciation and amortization) of about £11m, up 5% on first-half 2013’s £10.5m. Net debt is expected to be less than £36m (cut from first-half 2013’s £37.5m) despite one-off reorganization and restructuring cash costs of £3m during first-half 2014. IQE also invested in a strategic inventory build of about £2m during first-half 2014 as part of its synergy program.

“The improvement in profitability reflects the work we have done to improve efficiencies and deliver economies of scale,” says chief executive Dr Drew Nelson. “We remain on track to deliver further synergies during the second half,” he adds.

During Q2/2014, wireless demand began to recover from the customer destocking that took place earlier in the year. Customers order levels have improved, and IQE is seeing positive customer forecasts for the rest of the year. This outlook primarily reflects the acceleration of TD-LTE smartphone adoption in China, new handset launches, and the increasing adoption of new dual-band WiFi (802.11ac). “The destocking was concluded during Q2 and customers are forecasting an upbeat second half,” says Nelson.

In the photonics business, IQE expects to see 20% revenue growth in constant currency against first-half 2013, reflecting the transition from R&D to high-volume production, and following a number of contract wins in the past year. “Our investment in photonics technology is delivering tangible benefits, and has resulted in multiple contract wins,” says Nelson. This business is primed for continuing strong performance, the firm reckons.

IQE’s advanced solar concentrated photovoltaic (CPV) business is in the final stages of qualification and remains on track to move from customer qualification to production in second-half 2014. With continued progress in the end market and a new strategic investor involved with CPV cell manufacturing partner Solar Junction Corp of San Jose, CA, USA, IQE reckons that the outlook for its engagement in this rapidly growing market looks highly attractive.

The development of advanced products including gallium nitride (GaN) materials and compound semiconductor on silicon technologies is progressing well, says the firm, with a number of major technical and commercial milestones being delivered during first-half 2014. These milestones point to a transition to volume production over the next 2-3 years, reckons IQE, as these technologies replace silicon and other materials in the rapidly growing markets for energy-efficient devices such as LEDs and power semiconductors over the next few years.

IQE’s board says it is confident that the firm remains on track to achieve its expectations for full-year 2014.

See related items:

IQE’s revenue and profits rise strongly, driven by robust wireless business and diversification

IQE expects revenue growth of 43% for 2013 to record £126m

IQE’s first-half revenue up 80% year-on-year to nearly £63m

IQE launches dedicated wireless products division

IQE launches dedicated infrared products division

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