27 March 2014

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

For full-year 2013, epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK has reported record revenue of £126.8m, up 44% on 2012’s £88m (despite an adverse second-half currency impact as sterling appreciated 3% against the US dollar). However, this includes £30.9m from Kopin Wireless (the MOCVD-based HBT epiwafer manufacturing business of Kopin Corp of Taunton, MA, USA, acquired in January 2013).

For second-half 2013 (compared with first-half 2013, on a constant currency basis), wireless sales were up 3% and photonic sales were up 12%.

“IQE’s core wireless division has again delivered a robust performance, with continued growth despite a significant downstream inventory correction in the major chip companies due to softness in the high-end smartphone market,” says chief executive Dr Drew Nelson. “As a direct result of our customer risk mitigation strategy, which we have executed over the last 18 months and completed with the acquisition of Kopin Wireless, we are much less sensitive to market share shifts between the major chip supply companies,” he adds.

For full-year 2013 compared with full-year 2012, adjusted profit before tax (PBT) was up 51% from £8.6m to £13m. Adjusted fully diluted earnings per share (EPS) was up 43% from 1.4p to 2p. Cash inflow from operations (before exceptional items) was up from £4.7m to £16.2m. Cash conversion has more than doubled, from 51% to 111%. During second-half 2013, net debt rose from £15.5m to £34.4m, but this was due primarily to £25m of debt to part fund the Kopin acquisition.

IQE says that the integration of Kopin Wireless has been reflected in strong operational performance and major customer service awards. In particular, operational efficiency has improved through the benefit of synergies including sharing best practice and economies of scale. The firm is on track to eliminate duplicate overheads through the consolidation of operations without any loss of capacity or technology, saving more than £7m on an annualised basis.

“Concerns in the UK over the last year that silicon CMOS would significantly damage the compound semiconductor industry have proved unfounded and are not reflected in our financial performance nor in our customers’ expectation of future long-term demand drivers,” says Nelson.

“Wireless remains an attractive market for us over the coming years, with demand continuing to be driven by the proliferation of wireless applications and the need for sophisticated GaAs chips to deal with the explosive growth in data traffic,” continues Nelson. “Beyond this, the next waves of innovation which will drive handset-replacement cycles are likely to include lasers and sensors using compound semiconductor technology, for gaming, 3D image capture, gesture recognition, and sensing for a variety of applications including healthcare monitoring devices,” he adds.

“Our business diversification strategy also gained strong traction, and we achieved a number of significant technical and commercial milestones during 2013 which reflect the strong progress made in our other key markets including photonic sensors and lasers, advanced solar (CPV), power semiconductors, infrared, LED and advanced electronics,” says Nelson.

IQE notes that its concentrated photovoltaics (CPV) commercialization strategy has been strengthened by the acquisition this month of its stake in CPV cell maker Solar Junction Corp (SJC) of San Jose, CA, USA by a strategic investor. In particular, a robust supply chain is being established and qualification is progressing well, says IQE.

IQE says it is making progress on its diversification strategy through new product development and qualifications, including:

• a major three-year supply contract with Philips for vertical-cavity surface-emitting laser (VCSEL) applications (announced last October);

• a new 150mm VCSEL product for high-volume applications (launched in mid-March);

• the achievement of record VCSEL energy-efficiency and speed performance (announced in February and March, respectively);

• the development of silicon photonics technology (reported in late January); and

• the world’s first 150mm indium antimonide (InSb) substrates for infrared applications (launched at Photonics West 2014 in February);

IQE states that the reorganization of its business into market streams reflects confidence of strong growth in emerging markets and revenue diversification.

“IQE is at the forefront of the enabling technologies that are at the very heart of many of the 21st-century trends and products,” says Nelson. “We are confident that the group is well positioned for continued growth in earnings and cash flow in 2014 and beyond.”

See related items:

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

IQE to acquire Kopin’s III-V assets for $75m; share placing to raise £16.5m

IQE completes CPV technology process transfer milestones with Solar Junction

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