Interim results H1 2011: continued growth momentum in smartphone market coupled with diversifying opto revenues drive interim profits up 28%
07 September 2011
Continued growth momentum in smartphone market coupled with diversifying opto revenues drive interim profits up 28%
Cardiff, UK. 7 September 2011: IQE plc (AIM: IQE, “IQE” or the “Group”), the leading global supplier of advanced wafer products and wafer services to the semiconductor industry, announces its half year results for the six months to 30 June 2011.
- Revenues up 16% to £38.3m (H1 2010: £33.0m)
- Constant currency revenue growth of 23% - wireless sales up 21% and optoelectronic sales up 32% (organic 16%)
- EBITDA up 13% to £6.1m (H1 2010: £5.4m)
- Pre-tax profit up 28% to £2.8m (H1 2010: £2.2m)
- Adjusted EPS* up 18% to 0.71 pence (H1 2010: 0.60 pence)
- EPS up 20% to 0.60 pence (H1 2010: 0.50 pence)
- Strong cash conversion from operations £5.9m (H1 2010: £1.9m)
- Ungeared balance sheet, net funds £1.0m (Dec 2010: £7.0m)
*Adjusted EPS – EPS before non-cash share based payment charges
- Continued strong sales performance in key markets: wireless up 14% and optoelectronics up 25%
- Wireless growth driven by continued strong adoption of smartphone and other mobile computing devices
- IQE’s products in majority of top-tier smartphones: broad customer base and growing market share (over 30%)
- Engaged in over 20 new significant product qualifications
- Over 100% growth in Gallium Nitride based high power RF business
- Significant growth in opto-electronics:
- Significant organic growth driven by emerging technologies, including CPV solar, infrared materials and VCSELs for finger navigation and optical interconnects.
- Infrared materials growth supported by 2010 acquisition of US based Galaxy semiconductors.
- Several patent applications across broad technology range submitted
- Continued investment in further production capacity to address growing demand in 2012 and beyond.
Dr Drew Nelson, IQE Chief Executive, said:
“The continued growth in demand for our wireless products driven by strong global smartphone adoption, coupled with increased revenues from our optoelectronic wafers have enabled us to maintain our momentum in the first half of 2011 with a diversifying revenue stream.
“Our core wireless markets continue to grow rapidly whilst the new markets around energy efficiency and consumer communications are also developing well.
“The end markets for our products continue to look attractive and offer sustainable high growth. Our overall upbeat outlook is tempered by recent growing uncertainty in the global economy. This has the potential to impact inventory levels downstream in the supply chain or of individual customers although we have not seen any evidence of this at this time. Given IQE’s strategic positioning, the Board remains confident of meeting current market expectations and of the Group’s exciting longer term growth prospects.”
Please click below to download the full results in PDF format (465KB)
INTERIM RESULTS 2011 1. GROUP OVERVIEW
IQE is the world’s leading supplier of advanced wafers to the semiconductor industry with a strategy that focuses on developing, maintaining and exploiting intellectually property-rich technologies for high-growth, high-volume markets.
The Group has developed a unique set of competitive advantages to provide its customers with world-leading epitaxial wafer foundry services. By delivering these advantages both consistently and globally, and through its strong operational performance, IQE has become the leader in its field.
IQE manufactures compound semiconductor wafers for major chip manufacturing companies, which use these wafers to make the chips that form the key components of virtually all high-technology systems from wireless devices such as smartphones, to photonic devices such as advanced solar energy generation and high efficiency lighting.
IQE offers the industry’s broadest product portfolio using the widest range of production platforms.
Revenues grew by 16% to £38.3m (H1 2010: £33.0m) including £1.1m of sales from Galaxy Compound Semiconductors (“Galaxy”), which was acquired in the fourth quarter of 2010.
In constant currency, revenues grew by 23% (organic growth 19%), reflecting wireless sales up 21% and opto electronic sales up 32% (organic growth 16%).
Gross profits increased by 15% to £8.4m (H1 2010: £7.3m) representing a gross margin of 22% (H1 2010: 22%).
Selling, general and administrative expenses increased by £0.8m to £5.4m (H1 2010: £4.6m), after the inclusion of Galaxy (£0.2m) and a fixed assets disposal in H1 2010 which netted £0.5m.
EBITDA increased by 13% to £6.1m (H1 2010: £5.4m).
Adjusted operating profit, excluding share based payments, increase by 13% to £3.6m (2010: £3.2m). Operating profit increased by 12% to £3.0m (H1 2010: £2.7m)
Adjusted pretax profit increased by 27% to £3.4m (H1 2010: £2.7m) after an interest charge of £0.2m (H1 2010: £0.5m). Reported pre-tax profit was £2.8m (H1 2010: £2.2m).
The Group benefitted from a £0.3m tax credit relating to R&D tax refunds. In addition, the Group has tax losses available to offset over £30m of future tax charges.
Retained profit for the period was £3.1m (H1 2010: £2.2m). Adjusted retained profit up 37% to £3.7m (H1 2010: £2.7m).
Adjusted EPS were up 18% to 0.71p (H1 2010: 0.60p). Earnings per share were up 20% to 0.60p (H1 2010: 0.50p),
Cash inflow from operations increased by £4.0m to £5.9m (H1 2010: £1.9m).
Net funds of £1.0m (31 December 2010: £7.0m).
3. STRATEGY, MARKET POSITION AND OPPORTUNITY
IQE’s strategy remains focused on delivering technology and production leadership in high-growth markets. The Group offers its customers the industry’s broadest product range, access to the latest, innovative technologies, unrivalled capabilities across a range of manufacturing platforms, facilities across three continents and an enviable intellectual property portfolio.
IQE has successfully established a clear leadership position in the high-growth wireless communications sector, currently accounting for around 75% of its sales. Through innovation and technology leadership, IQE is actively replicating its success in the wireless sector across a number of emerging high-growth markets including VCSEL technology (for applications such as optical connectivity, laser projection and finger navigation), CPV solar technology and high-efficiency solid-state light sources.
IQE offers its customers a powerful set of USPs: • most comprehensive, IP rich product portfolio covering all major applications; • global multi-site production capabilities; • choice of all the key manufacturing platforms; • global presence with broad contact base and access to all the key global markets; and • competitive pricing enabled by economies of scale including purchasing power and research and development efficiencies. IQE has a proven track record in developing, protecting and commercialising its intellectual property in support of the four technology “megatrends,” which the Board believe will be the main growth drivers for IQE over the next decade, namely; • high-speed connectivity; • sustainable clean energy generation and the efficient use of energy; • the explosion of personal consumer devices for enhanced lifestyle; and • the increased sophistication and performance of security related systems.
Each of the megatrends involves a wave of technology upgrades driven by economic, environmental, consumer or regulatory pressures, and each is being enabled to a very large degree by compound semiconductor materials and technology.
IQE is contributing strongly to each of these megatrends across all of its business segments by providing the key technologies that are already transforming a wide range of end user markets.
The accelerated adoption of advanced, high-speed mobile communications, including 3G, 4G/LTE, WiFi, GPS and other wireless technologies into mobile handsets, smartphones, personal computers, tablet PCs and a host of other mobile and satellite enabled devices is driving rapidly increasing demand for multiple compound semiconductor content in front end communication modules.
As mobile technologies continue to advance at a rapid pace with new features constantly emerging, the role of advanced compound-semiconductor materials such as gallium arsenide (GaAs) has become critical in enabling high-speed data communication, while maintaining low levels of power consumption.
IQE’s products are critical in the drive to 3G, 4G and beyond, providing the speed, power and efficiency to facilitate features such as high-resolution imaging, video streaming, high-speed wireless data access, voice over IP (VoIP) and satellite navigation. Each new generation of mobile device contains a much higher compound semiconductor content than the previous generation to facilitate backward compatibility, increased functionality and improved operational performance.
Industry analysts predict that total handset shipments will increase from 1.6bn in 2010 to 1.7bn in 2011, representing an overall growth rate of 6%. In 2010, smartphones represented only 22% of handset sales with industry analysts including Gartner and iSuppli, predicting that smartphone sales will grow at 28% CAGR, surpassing 1bn units by 2015.
The wider use of smartphones is expected to be enhanced as manufacturers and wireless operators roll out 4G networks and devices. A number of recent announcements indicate that this roll-out is likely to start from Q1 2012. Furthermore, increasing sales of tablet PCs is expected to bolster the total number of mobile broadband devices from 100m units in 2010 to over 350m units in 2015.
Wireless sector growth is expected to be further enhanced between 2012 and 2020 with the widespread adoption of machine-to-machine communications such as smart metering.
IQE’s strategy has been to maintain a range of wireless products (HBTs, pHEMTs and BiFETs) across all key chip manufacturers in the sector. This strategy provides some insurance against market share gains and losses amongst our customer base and has worked very well in recent years although 100% mitigation cannot be guaranteed because of variations in the product mix from customer to customer and with new products at different stages of qualification.
IQE is very strongly positioned to take maximum advantage of this powerful communication trend and continues to strengthen its position:
• qualified with and in production with all the top 12 wireless chip manufacturers globally, with at least one major customer product line (multiple lines with several customers); • already in qualification of a further 20 major product lines with the top 12 customers; • developed high end products with at least six of the major customers for 4G/LTE roll out during 2012; and. • established global leadership in GaN technology for high performance/high linearity wireless systems including base stations and line amplifiers for cable and satellite TV.
Connectivity and consumer Consumer demand for faster and more flexible means of communication is driving a number of high-growth, high-volume applications that depend on compound-semiconductor technology. This includes optical cables (such as Active Optical Cables, optical USB and Intel’s Light Peak / Thunderbolt), finger navigation for mobile devices, and laser projection systems. Optical cables are widely expected to displace the copper cables used to connect computers, TVs and peripherals.
IQE is the world leader in Vertical Cavity Surface Emitting Laser (VCSEL) technology, which lies at the heart of optical cables and finger navigation. Red, green and blue semiconductor lasers are also used to generate images in an emerging range of pico-projectors. It is anticipated that pico-projectors will quickly be embedded within handsets, tablet pcs, digital cameras and other portable devices, with almost 100m units expected to be shipped in 2017. Although a number of first generation pico-projectors may use cheaper LED light sources, rapid improvements in semiconductor laser technology are expected to drive a surge in laser pico-projectors over the coming years. In addition, many other applications such as laser printers, industrial cutting, cosmetics and medical applications will drive rapid deployment of miniature semiconductor lasers.
IQE continues to make strong progress in becoming established as the leader in the supply chain for these applications: • supplying three of the top six VCSEL manufacturers globally and in qualification with a further two; • multiple qualifications ongoing with 10 other Tier 2 VCSEL customers; • major global supplier of red laser materials for wide ranging applications; • significant progress on development of free-standing GaN substrates and blue lasers using NanogaN patented technology; and • global leader in advanced infrared imaging materials by virtue of WT and recently acquired Galaxy Inc business units.
Demand for IQE’s products in this area are being driven by the sustained move towards clean, efficient and sustainable energy sources (solar cells), and highly efficient light sources (LEDs) in order to reduce the impact of climate change and the reliance on fossil fuels to provide a much cleaner environment.
IQE’s technology provides the material for the most efficient and cost effective solar cells for power generation in the form of CPV (Concentrator Photo Voltaic) solar cells.
CPV solar energy generation is approaching an inflection point at which CAGR is expected to be around 175% over the next five years compared with 19% for the overall solar market. This is driven by the growing appreciation that in sunny areas, CPV is projected to have the lowest cost of production of electricity, including fossil and nuclear fuels. Even with the significant growth in the sector, at 1.6GW installed capacity CPV will only account for 4% of total solar energy generation in 2015, but will require as many compound semiconductor wafers as the entire wireless industry consumes today.
IQE is uniquely positioned as a global leader in the advanced semiconductor enabling technology for CPV.
• submitted five patents; • engaged with four of the top five cell manufacturers at various levels; and • supplying advanced quantum confined products, producing high levels of efficiency.
Closely linked with sustainable power generation is the move towards high efficiency lighting in the form of Ultra High Efficiency Light Emitting Diodes (LEDs). Lighting accounts for over 20% of the world’s energy consumption. A key driver for the adoption of alternative lighting technology will be the almost universal banning of incandescent lighting technology from 2012. LED Solid State Lighting is emerging as the major technology to displace existing lighting, and has been predicted by Hans van Wijngaarde of Philips to account for 90% of the general lighting market by 2020. IQE’s strategy is based on the development of much higher quality substrates using NanoGaN’s patented technology to develop extremely high power LED chips for the general lighting market.
The ever-increasing demand for higher speed and improved performance from today’s electronic devices is ushering in a new era of semiconductor materials that combine the versatility of silicon, which has been the default semiconductor material for the last half century, with the power and performance of compound semiconductors that have emerged as true 21st century materials.
IQE is at the forefront of developing highly advanced technology for producing compound semiconductor on Si wafers and have also developed a new range of engineered substrates such as Germanium on Insulator (GeOI) for next-generation integrated circuits and devices.
IQE has established strong positions in both technologies, working with some of the industry’s biggest names. The Group has
• been granted three patents, jointly with Intel; two further applications in hand; • published over 21 papers and made nine conference presentations jointly with partners; • developed the world’s first 8” fully integrated CS on Si wafer as part of major US COSMOS programme; • developed a range of engineered substrates including germanium on insulator (GeOI), silicon on insulator (SOI), silicon on sapphire (SOS) and germanuim on silicon (GeOS); and • undertaken development of GaN on Silicon for large volume power conversion markets.
5. TRADING OUTLOOK
Growth in demand for IQE’s products during the first half of 2011 was driven by the increasing demand for wireless components used in smartphone and tablet PC technologies, which contain a significantly higher content of gallium arsenide (GaAs) products than previous generations of handheld devices, together with significantly increasing demand for a range of opto electronic products.
Smartphones represent a fundamental structural shift in mobile communications and will still only account for 28% of the total handset marketplace in 2011. Industry analysts predict continued growth in smartphone shipments for several years to come. In addition, the rapid roll out of LTE and 4G communications in 2012 and beyond, and the proliferation of wireless applications such as with smart meters and point-to-point communications, will add further demand for IQE’s wireless products.
Demand for wireless products is strongly supported by accelerating growth of optoelectronic devices across a range of new technologies and applications, including optical communications, finger navigation, lasers for projection, high efficiency LEDs and CPV materials for advanced solar energy generation.
The end markets for our products continue to look attractive and offer sustainable high growth. Our overall upbeat outlook is tempered by recent growing uncertainty in the global economy. This has the potential to impact inventory levels downstream in the supply chain or of individual customers although we have not seen any evidence of this at this time. Given IQE’s strategic positioning, the Board remains confident of meeting current market expectations and of the Group’s exciting longer term growth prospects.”
Dr Drew Nelson CEO
IQE plc (+44 29 2083 9400) Drew Nelson Phil Rasmussen Chris Meadows
College Hill (+44 20 7457 2020) Adrian Duffield Kay Larsen
Espirito Santo Investment Bank (+44 20 7456 9191) Richard Crawley James Bromhead
Note to Editors
IQE is the leading global supplier of advanced semiconductor wafers with products that cover a diverse range of applications, supported by an innovative outsourced foundry services portfolio that allows the Group to provide a 'one stop shop' for the wafer needs of the world's leading semiconductor manufacturers.
IQE uses advanced crystal growth technology (epitaxy) to manufacture and supply bespoke semiconductor wafers ('epi-wafers') to the major chip manufacturing companies, who then use these wafers to make the chips which form the key components of virtually all high technology systems. IQE is unique in being able to supply wafers using all of the leading crystal growth technology platforms.
IQE's products are found in many leading-edge consumer, communication, computing and industrial applications, including a complete range of wafer products for the wireless industry, such as mobile handsets and wireless infrastructure, Wi-Fi, WiMAX, base stations, GPS, and satellite communications; optical communications. The Group also manufactures advanced optoelectronic and photonic components such as semiconductor lasers, vertical cavity surface emitting lasers (VCSELs) and optical sensors for a wide range of applications including optical storage (CD, DVD, BluRay), thermal imaging, leading-edge medical products, pico-projection, finger navigation ultra high brightness LEDs, and high efficiency concentrator photovoltaic (CPV) solar cells.
The manufacturers of these chips are increasingly seeking to outsource wafer production to specialist foundries such as IQE in order to reduce overall wafer costs and accelerate time to market.
IQE also provides bespoke R&D services to deliver customised materials for specific applications and offers specialist technical staff to manufacture to specification either at its own facilities or on the customer's own sites. The Group is also able to leverage its global purchasing volumes to reduce the cost of raw materials. In this way, IQE's outsourced services, provide compelling benefits in terms of flexibility and predictability of cost, thereby significantly reducing operating risk.
IQE operates eight facilities located in Cardiff (two), Milton Keynes and Bath in the UK; in Bethlehem, Pennsylvania, Somerset, New Jersey and Spokane, Washington in the USA; and Singapore. The Group also has 11 sales offices located in major economic centres worldwide.