3rd Quarter and Nine Months Results, 2001
IQE plc (IQE), the world s leading global outsource supplier of customised epitaxial wafers to the semiconductor industry, is pleased to announce its 3rd Quarter and Nine Months Results for the period ended 30 September 2001.
Highlights
- Q3 sales at £8.234m, 28% higher than the third quarter of the prior year (Q3/2000: £6.431m) although 37% less than the previous quarter
- Sales for the nine months up by 75% to £34.351m (2000: £19.639m)
- Q3 operating loss before goodwill amortisation and operating exceptional items at £2.228m, compared with a small profit in the same period in 2000 (Q3/2000: £0.380m). Significantly increased R&D spend of £1.602m (Q2/2001: £0.757m) in support of important new development programs.
- Operating profit for the nine months before goodwill and exceptionals at £0.328m (2000: £1.167m)
- Operating cash outflow for Q3 held to £1.230m, and capital expenditure reduced to £3.475m compared to £8.844 m in the previous quarter.
- Continued good progress at IQE Silicon Compounds including the successful completion of customer qualification programs, receipt of the first pilot production orders and excellent feedback on SiGe products
- Significant success in new product developments, particularly with long wavelength VCSELs, Avalanche Photodiodes and InP HBTs
- Agreements were reached yesterday with Motorola after the quarter end on the commercial basis for exploitation of their revolutionary GaAs on silicon technology which have resulted in IQE becoming the development partner and first licensee with exclusive supply arrangements for a range of wafer products. In addition, Motorola will make an equity investment in IQE of $10m and will be granted warrants to subscribe to a further $10m of shares (see separate announcements).
- Announcement of Placing and Open Offer to existing shareholders to support the commercialisation of the new Technology, plus arrangement of an Equity Draw down facility of £14m (see separate announcements).
Commenting on the results, Dr Drew Nelson, Executive Chairman, said……. " As previously indicated, the Group was unable to obtain sufficient new development contracts in the quarter to fully compensate for the loss of production volumes caused by the dramatic downturn in the key optoelectronic markets in which the Group operates. However, sales were still 28% higher than the corresponding period in the previous year. Following the end of the quarter, we concluded our commercial negotiations with Motorola for the revolutionary new GaAs on silicon technology which opens the way for IQE to aggressively market this technology and start to generate development revenues in 2002. The deal with Motorola has exceptional potential, giving IQE a substantial period of exclusivity for certain products and attracting a significant equity investment from Motorola which underpins their belief in the importance of this new technology. "
Contact: Drew Nelson, Executive Chairman, IQE plc Tel: (029)20-839405 Richard Clarke, Finance Director, IQE plc Tel: (029)20-839407 Tim Thomson/Nicky Cronk, Buchanan Communications Tel: (0207)4-665000
3 rd QUARTER RESULTS
INTRODUCTION The Group s two principal markets both remained depressed throughout the third quarter, which was also impacted by a further downturn in global markets due to world events. In the opto-electronics market, many of the Group s key customers continued to announce worsening sales and profitability as well as further headcount reductions, while the electronics sector had yet to show any real signs of recovery, although that has now begun to happen in Q4. However, despite these being the worst market conditions ever faced by the semiconductor industry, IQE was able to show a year on year increase in sales of 28% and limit losses at the EBITDA level to only £0.547 million, resulting in a small net cash outflow from operations of £1.230 million. The Group has continued to assemble its production capabilities and resource to remain the largest pure play compound semi-conductor wafer manufacturer in the world and to take advantage of the eventual recovery in its key markets.
RESULTS As anticipated, the dramatic reduction in production volumes of opto-electronic products in Q3 could not be fully offset by new development programs and accordingly sales at £8.234 million were limited to an increase of 28% year on year (Q3/2000: £6.431 million), although down sequentially from the previous quarter by 37%. Sales for the nine months to September were 75% higher than the previous year at £34.351 million (2000: £19.639 million). The improvement in turnover in the nine months resulted from bringing on line new reactors installed in the second half of the previous year, as well as a full nine months contribution from Wafer Technology and the initial sales from IQE Silicon Compounds. Gross margins in Q3 were much lower than the previous quarter at 15.8% (Q2/2001: 31.0%) mainly due to capacity utilisation issues in the UK and US III-V operations caused by the weak optoelectronic and electronic marketplaces during the quarter. At the same time, Wafer Technology continued to be adversely affected by high gallium prices, although these have now fallen back to historic levels.
In-house research and development effort was increased in Q3 to £1.602 million, representing 19.5% of sales (Q2/2001: £0.757 million, 5.8% of sales), to support increased development activity particularly in the areas of new products such as InP HBTs, long wavelength VCSELs, GaInP HBTs, Avalanche Photodiodes (APDs) and GaAs on silicon technology, all of which was expensed in the quarter. Total research and development costs for the nine months amounted to £2.898 million (2000: £1.412 million), which was equivalent to 8.4% of sales (2000: 7.2% of sales). Sustained efforts to control costs meant that SG&A expenses continued to reduce to £1.928 million (Q2/2001: £2.027 million), although increasing as a percentage of sales to 23.4% (Q2/2001: 15.4%).
As a consequence of the foregoing, the operating loss for the quarter before goodwill amortisation and operating exceptional items was £2.228 million, compared with a small profit in the corresponding period in 2000 (Q3/2000: £0.380 million) and a profit in the previous quarter of £1.292 million.
Cumulative operating profit for the nine months before goodwill and exceptionals at £0.328 million was 72% lower than the first nine months of the prior year (2000: £1.167 million). This represents an operating margin of 1.0% as against 5.9% for the same period last year. After crediting net interest income of £0.320 million (2000: £0.619 million) and charging operating exceptional items of £0.506 million (2000: £0.180 million) and goodwill amortisation relating to the Wafer Technology acquisition of £1.363 million (2000: Nil), the Group operating result before tax was a loss of £1.221 million (2000: profit of £1.606 million). The after tax loss was £1.173 million (2000: profit of £1.126 million) and basic loss per share was 0.72 pence (2000: earnings per share of 0.79 pence). Excluding goodwill amortisation, earnings per share were 0.12 pence.
Excluding capital expenditure, the Group incurred an operating cash outflow for the nine months of £2.550 million (2000: inflow of £5.836 million). A positive cash flow in the first quarter was eroded by working capital increases in the second quarter, in particular a short term increase in raw material stocks caused by the market slowdown, and further exacerbated by the operating losses incurred in Q3. Capital expenditure reduced substantially in Q3 to £3.475 million (Q2/2001: £8.844 million) following the completion of the initial investment programme for IQE Silicon Compounds. A considerable portion of this related to equipment required for the GaAs on silicon development. Total capital expenditure for the year to date amounts to £22.386 million (2000: £19.007 million), bringing the net cash outflow for the nine months before financing to £24.578 million (2000: £12.586 million). Ongoing capital expenditure will decline significantly in Q4 and beyond.
OPERATIONS Overall, during Q3, new development contracts at IQE (Europe) were not sufficient to offset the dramatic decline in production orders from opto-electronic manufacturers, who are currently suffering from a significant inventory backlog. However, major progress was made in new product developments for next generation systems, particularly in long wavelength 1.3mm VCSELs, where successful devices have now been demonstrated, and in advanced detectors (APDs) where a new product has been launched with world class device results. The HBT product from IQE (Europe) has also met with significant success and is being qualified by a number of manufacturers worldwide.
In the wireless marketplace, the Company is now seeing definite signs of improvement to trading conditions, with some significant production orders now being agreed with customers. In addition, new product development continues to be successful, particularly with InP HBTs which are now designed into several new customer products. Strong work continues on supporting the revolutionary new GaAs on silicon technology, as further detailed in today s announcements. Wafer Technology continues to perform well on specialist wafer products, although their more mature business has also suffered as a consequence of the very difficult market conditions. Margins were adversely impacted in Q3 due to high metal prices but these are now well under control. Overall, Wafer Technology is outperforming its competitors in the marketplace and business has held up reasonably well.
IQE Silicon Compounds has now signed up a further 5 Non Disclosure Agreements making 32 in total and has run qualification wafers for 16 customers. The initial qualifications are now completing and the company recently received its first production orders from large European IC manufacturers.
Progress continues to be very positive with excellent feedback on the new SiGe products and the successful completion of further qualification programs will lead to accelerating production over the next few quarters. Overall, the current trading environment continues to be extremely challenging, particularly in the opto-electronics sector. Continued weakness in this area is being offset to an extent by the improving environment in the wireless sector and the success of IQE Silicon compounds in winning production orders. Consequently, in order to conserve cash, the Group has taken a number of cost control initiatives that are anticipated to help it to re-establish profitability in the coming quarters whilst maintaining critical production capability, resource and infrastructure in place to ensure the business is properly positioned to exploit its medium term potential.
Notwithstanding the current difficult marketplace, IQE has clearly established a clear leadership position as the pre-eminent global epiwafer supplier into the semiconductor industry, as evidenced by Motorola s selection of IQE to further develop and commercialise what is potentially the most exciting discovery within the semiconductor field for many years.
The agreements with Motorola relating to the commercialisation of GaAs on silicon, coupled with the increasing trend toward outsourcing within the semi-conductor industry, offer powerful opportunities for the future. Your Board believes that as the semiconductor industry recovers, IQE is strongly positioned to build further upon its position as the leading outsource wafer supplier within the compound semi-conductor industry.
Dr Drew Nelson
Executive Chairman IQE plc
Drew Nelson, Executive
Chairman, IQE plc Tel: (029)20-839405 Richard Clarke, Finance Director, IQE
plc Tel: (029)20-839407 Tim Thomson/Nicky Cronk, Buchanan Communications Tel:
(0207)4-665000
3 rd QUARTER RESULTS
INTRODUCTION The Group s
two principal markets both remained depressed throughout the third quarter,
which was also impacted by a further downturn in global markets due to world
events. In the opto-electronics market, many of the Group s key customers continued
to announce worsening sales and profitability as well as further headcount reductions,
while the electronics sector had yet to show any real signs of recovery, although
that has now begun to happen in Q4. However, despite these being the worst market
conditions ever faced by the semiconductor industry, IQE was able to show a
year on year increase in sales of 28% and limit losses at the EBITDA level to
only £0.547 million, resulting in a small net cash outflow from operations of
£1.230 million. The Group has continued to assemble its production capabilities
and resource to remain the largest pure play compound semi-conductor wafer manufacturer
in the world and to take advantage of the eventual recovery in its key markets.
RESULTS As anticipated,
the dramatic reduction in production volumes of opto-electronic products in
Q3 could not be fully offset by new development programs and accordingly sales
at £8.234 million were limited to an increase of 28% year on year (Q3/2000:
£6.431 million), although down sequentially from the previous quarter by 37%.
Sales for the nine months to September were 75% higher than the previous year
at £34.351 million (2000: £19.639 million). The improvement in turnover in the
nine months resulted from bringing on line new reactors installed in the second
half of the previous year, as well as a full nine months contribution from Wafer
Technology and the initial sales from IQE Silicon Compounds. Gross margins in
Q3 were much lower than the previous quarter at 15.8% (Q2/2001: 31.0%) mainly
due to capacity utilisation issues in the UK and US III-V operations caused
by the weak optoelectronic and electronic marketplaces during the quarter. At
the same time, Wafer Technology continued to be adversely affected by high gallium
prices, although these have now fallen back to historic levels.
In-house research and development
effort was increased in Q3 to £1.602 million, representing 19.5% of sales (Q2/2001:
£0.757 million, 5.8% of sales), to support increased development activity particularly
in the areas of new products such as InP HBTs, long wavelength VCSELs, GaInP
HBTs, Avalanche Photodiodes (APDs) and GaAs on silicon technology, all of which
was expensed in the quarter. Total research and development costs for the nine
months amounted to £2.898 million (2000: £1.412 million), which was equivalent
to 8.4% of sales (2000: 7.2% of sales). Sustained efforts to control costs meant
that SG&A expenses continued to reduce to £1.928 million (Q2/2001: £2.027
million), although increasing as a percentage of sales to 23.4% (Q2/2001: 15.4%).
As a consequence of the
foregoing, the operating loss for the quarter before goodwill amortisation and
operating exceptional items was £2.228 million, compared with a small profit
in the corresponding period in 2000 (Q3/2000: £0.380 million) and a profit in
the previous quarter of £1.292 million.
Cumulative operating profit
for the nine months before goodwill and exceptionals at £0.328 million was 72%
lower than the first nine months of the prior year (2000: £1.167 million). This
represents an operating margin of 1.0% as against 5.9% for the same period last
year. After crediting net interest income of £0.320 million (2000: £0.619 million)
and charging operating exceptional items of £0.506 million (2000: £0.180 million)
and goodwill amortisation relating to the Wafer Technology acquisition of £1.363
million (2000: Nil), the Group operating result before tax was a loss of £1.221
million (2000: profit of £1.606 million). The after tax loss was £1.173 million
(2000: profit of £1.126 million) and basic loss per share was 0.72 pence (2000:
earnings per share of 0.79 pence). Excluding goodwill amortisation, earnings
per share were 0.12 pence.
Excluding capital expenditure,
the Group incurred an operating cash outflow for the nine months of £2.550 million
(2000: inflow of £5.836 million). A positive cash flow in the first quarter
was eroded by working capital increases in the second quarter, in particular
a short term increase in raw material stocks caused by the market slowdown,
and further exacerbated by the operating losses incurred in Q3. Capital expenditure
reduced substantially in Q3 to £3.475 million (Q2/2001: £8.844 million) following
the completion of the initial investment programme for IQE Silicon Compounds.
A considerable portion of this related to equipment required for the GaAs on
silicon development. Total capital expenditure for the year to date amounts
to £22.386 million (2000: £19.007 million), bringing the net cash outflow for
the nine months before financing to £24.578 million (2000: £12.586 million).
Ongoing capital expenditure will decline significantly in Q4 and beyond.
OPERATIONS Overall, during
Q3, new development contracts at IQE (Europe) were not sufficient to offset
the dramatic decline in production orders from opto-electronic manufacturers,
who are currently suffering from a significant inventory backlog. However, major
progress was made in new product developments for next generation systems, particularly
in long wavelength 1.3mm VCSELs, where successful devices have now been demonstrated,
and in advanced detectors (APDs) where a new product has been launched with
world class device results. The HBT product from IQE (Europe) has also met with
significant success and is being qualified by a number of manufacturers worldwide.
In the wireless marketplace,
the Company is now seeing definite signs of improvement to trading conditions,
with some significant production orders now being agreed with customers. In
addition, new product development continues to be successful, particularly with
InP HBTs which are now designed into several new customer products. Strong work
continues on supporting the revolutionary new GaAs on silicon technology, as
further detailed in today s announcements. Wafer Technology continues to perform
well on specialist wafer products, although their more mature business has also
suffered as a consequence of the very difficult market conditions. Margins were
adversely impacted in Q3 due to high metal prices but these are now well under
control. Overall, Wafer Technology is outperforming its competitors in the marketplace
and business has held up reasonably well.
IQE Silicon Compounds has
now signed up a further 5 Non Disclosure Agreements making 32 in total and has
run qualification wafers for 16 customers. The initial qualifications are now
completing and the company recently received its first production orders from
large European IC manufacturers.
Progress continues to be
very positive with excellent feedback on the new SiGe products and the successful
completion of further qualification programs will lead to accelerating production
over the next few quarters. Overall, the current trading environment continues
to be extremely challenging, particularly in the opto-electronics sector. Continued
weakness in this area is being offset to an extent by the improving environment
in the wireless sector and the success of IQE Silicon compounds in winning production
orders. Consequently, in order to conserve cash, the Group has taken a number
of cost control initiatives that are anticipated to help it to re-establish
profitability in the coming quarters whilst maintaining critical production
capability, resource and infrastructure in place to ensure the business is properly
positioned to exploit its medium term potential.
Notwithstanding the current
difficult marketplace, IQE has clearly established a clear leadership position
as the pre-eminent global epiwafer supplier into the semiconductor industry,
as evidenced by Motorola s selection of IQE to further develop and commercialise
what is potentially the most exciting discovery within the semiconductor field
for many years.
The agreements with Motorola
relating to the commercialisation of GaAs on silicon, coupled with the increasing
trend toward outsourcing within the semi-conductor industry, offer powerful
opportunities for the future. Your Board believes that as the semiconductor
industry recovers, IQE is strongly positioned to build further upon its position
as the leading outsource wafer supplier within the compound semi-conductor industry.
Dr Drew Nelson
Executive Chairman IQE plc
