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IQE bounces on optimistic outlook

Epiwafer foundry's stock market valuation surges as it raises hopes for a strong finish to 2009.

Epiwafer specialist IQE believes that demand for its services will start to pick up in the coming weeks, and accelerate into the second half of this year.

The positive outlook from the Cardiff, UK, headquartered company sent its share price rocketing more than 70 per cent at one stage on March 24.

IQE spokesman Chris Meadows told compoundsemiconductor.net that there was a feeling that the slump had now passed its "bottom", and that the market would benefit from the early action taken by GaAs device makers to reduce inventory levels and prevent a build-up of unwanted stock.

"Visibility is still shorter than it was a year ago," said Meadows. "But the indications are good."

Meadows added that the recent slowdown was a lot more sudden than had been seen during the only previous major GaAs industry recession, in 2001. This time around, he believes that the recovery should be much quicker, thanks to the decisive action taken.

As expected, IQE posted a strong increase in revenues for 2008, showing 21% growth to £60.5 million ($88.7 million) fueled largely by a sharp increase in sales of GaAs-based products for wireless applications "“ the company s dominant segment.

Once the current slump is over, increasing consumer demand for GaAs-heavy smart phones is expected to drive the need for IQE epiwafers over the longer term, as the likes of Nokia, LG and Apple battle for market share.

The improved sales delivered an operating profit of £4 million for the year at IQE, before the twin expenses of relocating its Singapore operations and a restructure of operations in late 2008 were taken into account.

That relocation cost IQE some £2.4 million, while the restructuring "“ which included a 16 per cent reduction in workforce and temporary pay cuts to remaining staff "“ added another £1.4 million expense.

But with those actions now completed and IQE hopeful of returning demand for smart phones, plus a move to mass production of solar cells for "multiple customers", the company appears well positioned to take advantage of any upturn.

The emerging concentrator photovoltaics (CPV) industry should provide a material boost for IQE in the second half of this year, as volume production of multi-junction cells starts to generate "meaningful revenues".

IQE-fabricated cells are currently undergoing qualification, and are expected to deliver spectral efficiencies "in the ballpark" of the record-breaking 40 per cent devices developed recently (see related stories) by researchers in the US and Germany.

Although the company declined to release financial guidance or indicate a breakeven revenue point for 2009, IQE does expect to be able to meet significant debt obligations that are due this year.

It currently owes a total of £17.1 million in loans, £7.1 million of which is due by the end of 2009.

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