IQE: end of year performance in line with expectations

Unaudited trading update puts revenue for the year at around £112m

IQE plc, a supplier of advanced wafer products and services, today announced an unaudited trading update for the year ended 31 December 2014.

The group's revenue for the year is expected to be approximately £112m, with second half revenues of around £60m.  Other headline trading figures are also expected to match expectations. EBITDA is projected to be up by around 8 percent year on year at approximately £27m, following a second half EBITDA of approximately £16m. Adjusted, fully diluted EPS for the year is expected to be up around 20 percent at approximately 2.4p.

The company also says that net debt at 31 December 2014 will be around £31m, down from £34.4m a year earlier.  This progress has been made after approximately £5m of cash restructuring costs (now complete) and after approximately £8m of contingent deferred consideration (payments of which will end in 2016).

The company says that the the wireless business is enjoying an improved outlook, the photonics business continuing to show strong double digit growth, and the group's new technologies, including the development of the GaN, progressing well

Drew Nelson, CEO and president of IQE plc, said: "We are excited by the market developments that are leading to the increasing deployment of compound semiconductor solutions across a range of applications, and that consequently offer potential for IQE to deliver continued steady growth as a result of the Group's unique position in the Compound Semiconductor materials marketplace.

He added: "we are confident about the progress that we expect to make during 2015.  I look forward to updating shareholders on the how we are performing when we announce our final results in March."

Market drivers

The compound semiconductor materials that IQE makes are used in a diverse range of end markets including wireless communications, a broad range of consumer and industrial applications using advanced photonic lasers and sensors, high resolution infrared systems, advanced solar power (CPV), high efficiency LED lighting, and efficient power switching. 

IQE is working with silicon chip companies and on a number of major government-funded programmes to develop next generation technology which will combine the scale and maturity of the silicon industry with the advanced properties of compound semiconductors.

Historically, approximately 80 percent of IQE's sales have been into the wireless communications market. This market continues to enjoy significant and sustainable long term growth, driven by the proliferation of increasingly complex wireless communication devices and systems such as LTE/4G, dual band WiFi, and GPS location devices, which require increasingly complex compound semiconductor solutions.

Combined with the rapid evolution of the Internet of Things (IoT), the increasing deployment of optical devices into handsets, tablets and computers, and the rapid growth in wearable technologies, a broader range of compound semiconductors is increasingly being required for mass consumer markets. As a result, IQE expects continued growth in demand for its wireless products complemented by more rapid growth in our photonics related businesses.

IQE's wireless business enjoyed double digit sequential growth in H2 over H1.  Furthermore, just after the period end, it secured a major contract renewal with a tier 1 customer estimated to be worth over S$50m, and which will also lead to some expansion of market share.  The outlook for this business unit remains robust, says IQE, driven by increasing adoption of 4G and LTE globally.

Its photonics business has also made progress with revenues growing by over 20 percent year-on year.  The company reports that it has further strengthened relationships with tier 1 photonic companies with additional long term supply agreements, and made excellent progress on its range of VCSEL products, both technically and commercially, with several important world firsts in energy efficiency and speed records for datacentre applications, and initial design wins across several other application areas.

Its Infrared business won some significant orders including one in October 2014 for $1.1m and more recently in January 2015 for $3.25m. 

IQE reports that the market for its advanced solar compound photo voltaic (CPV) technology has taken longer to develop than expected.  However, it has now moved from a development phase into pilot production, with initial orders received in Q4 2014, and wafers now being shipped into the field.  Looking ahead, we are pressing ahead with our plans to increase production during 2015/16.

Finally, IQE reports good  progress on its GaN technology platforms, particularly for basestation and power switching applications, including a major supply relationship with MACOM.