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18 November 2019

IQE cuts 2019 revenue guidance from £140-160m to £136-142m due to inventory reductions by US RF chip customers

In a trading update for full-year 2019, epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK has reduced its revenue guidance from £140-160m (given in June) to £136-142m, including a foreign exchange (forex) tailwind of about £3m. This is down on 2018’s £156.3m.

A mid-single-digit adjusted operating loss is now expected, resulting from revenue being below the previous guidance range, additional one-off commissioning costs at the firm’s new foundry in Newport, general diseconomies of scale associated with operating at low volume in some sites and the inclusion of losses for Singapore-based CSDC (formerly a joint venture, but now a 100% subsidiary since October).

In the Wireless business, there have been continued low volumes of orders and reductions in inventory by IQE’s major RF chip customers in the USA, offset to some extent by a “promising” increase in production for Asian supply chains. IQE has qualified three tools (with two more in the process of qualifying) with a major Taiwanese foundry. The firm adds that it continues to make good progress on new product development in RF filters and switches for 5G.

In Photonics, consistently strong 3D sensing volumes with IQE’s largest vertical-cavity surface-emitting laser (VCSEL) customer have been achieved in second-half 2019, underlining what IQE claims is its lead position for epiwafers in this supply chain. The firm says that it continues to make good progress on a significant number of Android-related supply chains, including two recently announced production qualifications. The market for indium phosphide (InP) lasers for datacom/telecom applications has remained weak but shows signs of growth for 2020, particularly in Asian markets.

The infrastructure phase of IQE’s capacity expansion was completed in first-half 2019, so since June the firm has taken steps to reduce costs and capital expenditure. Capex will be towards the bottom end of the prior guidance of £30-40m, and the net debt position at year end is expected to be £15-20m, against increased debt facilities of £57m announced in June.

The outlook for 2020 includes a seasonally weak first quarter and continued supply chain transitions in the wireless market. Beyond Q1, IQE is cautiously optimistic about a return to growth, driven by expected content gains in an expanding market for 3D sensing, demand for gallium nitride (GaN) to meet accelerating 5G infrastructure deployments, and expanding Asian market opportunities for both Photonics and Wireless products as supply chains continue to localize. IQE hence expects total revenue to return to moderate growth in 2020.

“IQE has experienced very challenging market conditions in 2019,” notes CEO Dr Drew Nelson. “Shortfalls in revenue relate predominantly to two major customers, with whom IQE is confident it has not lost share and who remain very well positioned for returns to growth in 2020. Indeed, the company remains well positioned to capitalize on an expanding future compound semiconductor market opportunity driven by the macro trends of 5G and connected devices,” he believes. “To fully realise this opportunity, the recently announced Executive Management Board is already making good progress in driving the company’s approach to increasing profitability, with specific responsibilities assigned for programs on operational execution, new technology introduction, revenue expansion through customer proximity and diversification, and strong cost management.”

See related items:

IQE acquires full ownership of CSDC joint venture

IQE’s first-half 2019 revenue down 9% year-on-year

IQE cuts 2019 revenue guidance to £140-160m due to impact of Hauwei export ban

IQE’s wireless wafer growth in 2018 outweighs VCSEL-driven drop in photonics

Tags: IQE

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