IQE reports challenging 2018
Capital investment in capacity establishes sound base for growth in 2019
Cardiff-based Wafer firm IQE has announced its results for the year ended 31 December 2018.
Wafer revenues at constant currency (which excludes licence income) increased 5.3 percent to $209.3m (2017: $198.7).Wireless revenues increased £6.1m (up 6.6 percent) to £97.8m (2017: £91.7m). £5m of the increase was from customer last time buys of GaN prior to the closure of our facility in New Jersey.
Replenishment of wireless inventory channels that were depleted following the conversion of wireless capacity to accommodate the aggressive VCSEL ramp in H2 2017 during a period of capacity constraint also contributed to the wireless growth.
Photonics revenues decreased £3.9m (down 8.1 percent) to £43.8m (2017: £47.7m). There was a substantial VCSEL inventory correction in H1 2018 and a sudden disruption in a significant supply chain and reduction in demand for VCSELs in November. Infrared revenues increased £1.1m (up 9.5 percent) to £13.1m (2017: £12.0m). Wireless represented 62.5 percent (2017: 60.0 percent) of wafer segmental revenue in 2018, Photonics 28 percent (2017: 31.2 percent) and Infrared 8.4 percent (2017: 7.8 percent)
Drew Nelson, CEO of IQE, said:
"2018 was a very difficult and challenging year for IQE group from many perspectives; including the tragic and untimely death of Phil Rasmussen. Our disappointing 2018 financial performance was materially impacted by a very substantial VCSEL inventory correction in the first half of 2018 and the sudden disruption in a highly significant supply chain causing greatly reduced short-term demand for VCSEL wafers during the last two months of the year. Compounding this is the current well-heralded softness in the smartphone market.
He added: "This overshadows and disguises the excellent position and prospects of IQE which should not be defined by this short-term impact on our growth trajectory and profitability. Revenue increases in 2019 will be driven by the return to strong growth of our photonics business and emerging opportunities in 5G and will be soundly based on operational improvements, rationalisation and capacity expansions that have been in progress for the last two years and which will complete in H1 2019.
"In addition to the capital investment in our new mega foundry in Newport (for photonics), we are completing additional capacity in Taiwan (wireless), Massachusetts (GaN) and Milton Keynes (infrared). We have also made considerable investment in engaging with more than 25 VCSEL chip companies underscoring IQE˙s exceptional leadership position in the emerging VCSEL supply chains based on our technical excellence, proven ability to ramp and dedicated commitment to install capacity, with 12 companies already actively qualifying the new facility.
"Complementing this investment in physical infrastructure, we closed on the acquisition of the cREO technology and IP portfolio from Translucent Inc. We have also continued to invest in our own internal Research and Development projects including materials for high performance HBTs, Porous RF switches, and Crystalline RF filters for 5G, next generation VCSELs and diffusers for VCSELs, and infrared materials for high volume consumer markets.
"Alongside its leadership position in VCSELs, IQE is at the forefront of the next generation of millimetre wave wireless communications technology for 5G infrastructure addressing the important challenges of high speed, high bandwidth and low latency wireless connectivity for 5G. The huge growth of mobile data and consumer demand for video streaming, along with the Internet of Things, driverless vehicles, virtual reality and a multitude of other emerging technologies are going to require fibre-quality data speeds delivered wirelessly and ubiquitously.
"5G networks will function across an unprecedented frequency range from traditional cellular bands to millimetre wave. IQE offers a powerful array of materials solutions enabling 5G, including enhanced efficiency GaAs HBT PAs, novel RF filter products utilising IQE•˙s proprietary cREO technology, and high performance switches for mobile devices, GaN HEMTs for wireless infrastructure, InP products for high-speed oscillators and photodiodes, and many more. Our participation in the DLINK program, announced earlier this week, is another example of how compound semiconductors produced by IQE will continue to fuel the connected world as it transitions to 5G platforms.
"The investment we have made in site rationalisation, increased production capacity and new products and the opportunity that this has created in the key sector areas of sensing, connectivity and energy, will deliver margin expansion, growing profitability and increasing free cash flow in 2019 and beyond•ˇ.