25 September 2023
IQE’s first-half revenue down about 40% year-on-year
For first-half 2023, epiwafer and substrate maker IQE plc of Cardiff, Wales, UK has reported revenue of £52m, down 39.7% on a reported basis (and 42.6% at constant currency) from £86.2m in first-half 2022. This was within the revised guidance range of £50–56m provided on 17 May.
Wireless revenue fell by 51.9% from £46.6m to £22.4m, due largely to weakness in global handset demand and supply chain inventory build-up.
Photonics revenue fell by 27.2% from £38.5m to £28m, due mainly to softness in the handset market and a slowdown in Asian telecoms infrastructure programs.
CMOS++ revenue rose by 43.1% from £1.1m to £1.6m, due to growth in silicon-based switches for power control.
Operating loss has more than doubled from £7.4m to £19.6m.
Adjusted non-GAAP EBITDA (earnings before interest, tax, depreciation and amortization) was -£5.7m, compared with +£12.3m in first-half 2022, adversely impacted by a reduction in sales and under-utilization of capacity, particularly in the Wireless business.
Despite halving from £8.3m, adjusted cash inflow from operations was still £4.3m, benefitting from management of working capital.
Total net cash capex and cash investment in intangibles rose from £7.6m to £8.5m, comprising: £5.2m investment in PP&E capex (up from £3.8m) prioritizing high-growth GaN power and display capacity (as set out at the time of the equity raise); £1.7m in purchase of intangibles of (down from £2.3m) related primarily to the ongoing systems transformation program; and £1.6m in ongoing investment in R&D (level with a year ago), focused on power electronics and micro-LEDs.
Compared with net debt of £6.7m at the end of June 2022 and £15.2m at end-December 2022, adjusted net funds improved to £5.3m at the end of June 2023. This follows completion of an equity raise of £29.7m (in net proceeds) on 18 May in order to strengthen the balance sheet and underpin strategic investment.
Also, on 17 May, IQE refinanced its undrawn multi-currency revolving credit facility with HSBC Bank plc of £27.3m ($35m), which has been extended to 1 May 2026.
“In a challenging macro environment, we have taken decisive action to manage costs and deliver immediate efficiencies and longer-term margin benefits,” says CEO Americo Lemos.
The optimized manufacturing plan for improved asset utilization includes:
- headcount reductions delivering about 10% in savings annually while retaining key skills for growth, with associated first-half 2023 restructuring costs of £1.2m;
- a reduction in non-labour costs to deliver greater than 20% in savings annually.
Global site optimization program
The consolidation of US MBE operations into the North Carolina site is on track to be completed by first-half 2024. Also ongoing is a review into optimizing IQE’s global footprint to improve operational efficiency and profitability.
“We are accelerating our diversification strategy with new customer designs in GaN power electronics and broadening our market penetration into the China wireless market,” notes Lemos. “By expanding our customer base across the breadth of our product portfolio and ramping in strategic growth areas, we are focused on improving future business performance.”
Strategic highlights during first-half 2023 are listed as:
- commencing sampling for GaN power with two new customers for 650V devices;
- design wins with multiple customers to deliver wireless products to leading China cellular and Wi-Fi suppliers for growing China and India smartphone market;
- customer qualifications for high-speed data-center applications, with next-generation VCSELs to enablend support growth in the artificial intelligence (AI) markets;
- customer sampling and qualification in progress to supply automotive-grade LiDAR VCSELs for a major China-based customer;
- production of second-generation, high-performance VCSELs used in consumer mobile 3D sensing applications for customers;
- developing the industry’s first 150mm (6”) indium phosphide (InP) photonics device platform, targeting customers in the Cloud/AI data-center markets;
- development of new laser materials technologies for a leading handset maker for next-generation longer-wavelength consumer sensing applications;
- development of 200mm (8”) red, green and blue (RGB) epitaxial wafer products for micro-LED display qualification;
- developing frameworks and processes to adopt and align with the Task Force on Climate-Related Financial Disclosures (TCFD) with first TCFD Statement published in the 2023 Annual Report and Financial Statements;
- developing emissions targets in accordance with the Science Base Targets initiative (SBTi), with IQE on track to submit targets within the 24 month commitment window.
Current trading and outlook
IQE notes that the current temporary semiconductor industry downturn is stabilizing, with continued pockets of recovery expected in second-half 2023, albeit more slowly than anticipated at the time of the firm’s full-year 2022 financial results. Specifically, IQE anticipates double-digit revenue growth in second-half 2023 versus first-half 2023, and expects to be profitable at an adjusted EBITDA level for full-year 2023.
Improvement is expected in 2024 as the supply chain normalizes and customer demand recovers.