News Article

Profitability Up, Revenue Down At IQE

Expectations for the year remain positive

IQE plc, the supplier of semiconductor wafer products and services, has provided a trading statement for the six months ended 30 June 2014. While revenue was down, a combination of efficiency gains, economies of scale, and sales mix has improved profitability, according to the company.

Drew Nelson, chief executive of IQE, said: "IQE is in good shape and our expectations for the year remain positive. The improvement in profitability reflects the work we have done to improve efficiencies and deliver economies of scale. We remain on track to deliver further synergies during the second half."

The group expects to deliver EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) of approximately £11m, up 5 percent on the prior year (H1 2013: £10.5m). Net debt is expected to be less than £36m (H1 2013: £37.5m) despite one-off reorganisation and restructuring cash costs of approximately £6.5m during the year to 30 June 2014.The group also invested in a strategic inventory build of approximately £2m during H1 2014.

As indicated at the end of 2013, first half revenues were influenced by de-stocking at a number of major customers due to softness in the handset market at the end of the year and into the start of 2014, coupled with the strength of sterling, which also had an adverse effect. As a result, the board expects first-half revenues of approximately £52m, down 17 percent on the first half of 2013 (£63m). In constant currency, sales were down approximately 10 percent.

Market Highlights

During Q2, wireless demand began to recover from the customer de-stocking which took place earlier in the year. Customers order levels have improved, and IQE says it is seeing positive customer forecasts for the rest of the year. This outlook primarily reflects the acceleration of TD-LTE smartphone adoption in China, new handset launches, and the increasing adoption of new dual band wifi (802.11ac). Compound semiconductors, says IQE, continue to be the critical technology enabling t advancement of global wireless communication solutions.

The photonics business is performing well and IQE expects to see 20 percent revenue growth in constant currency against H1 2013. This revenue increase reflects the transition from research and development to high volume production, and follows a number of contract wins announced in the past year. This business is primed for continuing strong performance.

The advanced solar (CPV) business is in the final stages of qualification and remains on track to move from customer qualification to production in H2. With continued progress in the end market, and a new strategic investor involved with CPV partner, Solar Junction, the outlook for  engagement in this rapidly growing market looks highly attractive, says IQE.

The firm reports that development of advanced products including gallium nitride materials and compound semiconductor on silicon technologies are progressing well. A number of milestones were delivered during the first half, pointing to a transition to volume production over the next two to three years, as these technologies replace silicon and other materials in the rapidly growing markets for energy efficient devices such as LEDs and power semiconductors.

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