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In preliminary results for 2007, substrate and epiwafer supplier IQE plc of Cardiff, UK has reported revenue of £50.1m, up 54% on 2006’s £32.4m (or up 69% at constant exchange rates), boosted by the qualification of various customers and new tools during Q4/2007 (resulting in record monthly revenue). This is the third consecutive year of strong revenue growth (averaging about 50% annually).

The firm ascribes its growth to a continued focus on high-growth global markets, particularly high-speed wireless communications. Also, acquisitions made during 2006 ( the epiwafer foundries MBE Technology Pte Ltd of Singapore and IQE RF LLC of Somerset, NJ, USA, formerly Emcore’s Electronic Materials & Device division) have been integrated into the group and have contributed strongly.

Consequently, wireless revenue has almost doubled from £20.3m to £38.1m, while electronics revenue has risen from £2.1m to £2.8m and optoelectronics has fallen slightly from £10.1m to £9.2m.

Gross profit has risen 250% from £2.3m to £8.2m. Excluding exceptional items, operating results have improved from a loss of £4m to a profit of £0.6m (driven by the wireless segment improving from a loss of £166,000 to a profit of £3.6m, counteracting the loss in optoelectronics rising from £2.4m to £2.8m). The return to operating profitability demonstrates the benefits of IQE’s powerful, highly leveraged business model and improved efficiencies, the firm says.

Selling, general and administrative expenses (SG&A) grew by £1.4m due to the two businesses acquired during 2006. In addition, £0.44m of one-off exceptional costs arose from the relocation of the Singapore operation to a new facility providing considerable room for expansion (to be completed during 2008).

Capital expenditure grew from £1.4m to £7.8m, including £2.7m relating to the purchase of property and an investment of £3.6m in additional capacity in specific areas to address growing demand for certain customers (funded by £5.5m of new loans). Investment in development expenditure also grew from £0.2m to £1.4m (which has been capitalized).

Net debt has grown from £5.9m to £14.2m. Shortly after the year end, IQE appointed Lloyds TSB Corporate Markets as its principal banker and agreed new, increased banking facilities of up to £15.5m for financing growth and working capital.

IQE says that market conditions continue to show robust demand for gallium arsenide based products, driven principally by 3G and other high-speed wireless applications. The strong forward demand for GaAs wafers is a consequence of the rapidly increasing number of GaAs components in each high-speed mobile communication device, resulting in growth in demand for GaAs components that is significantly outstripping growth in the overall handset and wireless communication markets.

“Our major markets have continued to be driven by the increasing demand for GaAs based components for high-speed, feature-rich mobile devices that demand the high levels of performance and functionality that our products deliver,” says chief executive Dr Drew Nelson. “Our strategy of focusing on rapidly growing technologies has given us a solid base from which we can deliver continued and sustainable growth,” he adds.

“Now that we are generating profits and cash from operations we have also put in place significantly enhanced banking facilities to support our continued growth. In the current economic climate, this new facility signals a resounding vote of confidence in IQE’s strategy, its business model and management team,” Nelson claims.

“We have maintained our strong growth throughout the first quarter of 2008, and continue to see robust forward demand from our customers, particularly in the high-speed wireless communications sector,” Nelson says. Q1 revenues are currently running 30-40% ahead of 2007.

“Whilst we remain highly focussed on the wireless mobile communications markets, there are also a number of other key high-growth and high-volume opportunities being rapidly developed across the group, he adds. IQE says it is also developing solar cell technology, highly efficient LEDs and ultra-high-speed microprocessor and memory chip materials technology. “As a result, we look forward to another year of high growth and sustained profitability,” Nelson concludes.

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