News

28 January 2009

 

IQE reports 20% growth in 2008, despite Q4 inventory reductions

Despite the severe global economic downturn in second-half 2008, epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK expects to report full-year 2008 results in line with expectations pre-dating the downturn. Revenues of about £60m is up 20% on 2007 as second-half 2008 almost matched the first half’s £30.2m revenue.

Earnings before interest, tax, depreciation and amortization (EBITDA) were £8.4m (more than double that of 2007 as second-half 2008 well exceeded the first half’s £3.6m). IQE expects to report a strong conversion of EBITDA into cash flow from operations, reflecting a minimal absorption of cash into working capital despite the continued growth in the business.

The firm also expects to deliver positive free cash flow, even after funding the final phase of a major investment program to commission spare capacity, relocating the Singapore business to a cleanroom complex (completed last September), and investing in the development of new product lines such as solar cells and ultra-efficient LEDs. Following completion of this capital program, the investment in infrastructure in 2009 is expected to be minimal. This is expected to result in a significant improvement in free cash generation in 2009.

IQE says that it has proactively cut costs to meet challenging market conditions. Following a strong third-quarter 2008, the global economic upheaval affected business during the fourth quarter, with a dramatic inventory reduction occurring throughout the supply chains of IQE’s major customer base. To ensure that the cost base remained aligned with underlying levels of activity and to protect margins, the group cut its fixed cost base, partly by consolidating and restructuring some operations.

This restructuring resulted in exceptional costs of £1.2m (in addition to the £2.4m related to relocating the Singapore facility). About half of the £1.2m are non-cash items relating to asset write-downs. Overall exceptional charges for 2008 are hence expected to be about £3.6m, with the restructuring completed by the end of 2008.

IQE says that the combination of cost reductions and investment in infrastructure, coupled with the development of a range of new products, has positioned it to respond rapidly to improvements in demand in its end markets as and when they arise.

Although the inventory reductions are expected to continue through first-quarter 2009, IQE sees signs that the markets will begin to pick up during the second quarter as inventories stabilize and customer pulls return to actual consumption levels.

During 2009 as a whole, the smartphone/3G wireless market, which has been the major driver for IQE’s revenue growth over the last three years, is expected to be broadly similar in volume to 2008. However, the firm expects to bring additional products to market in 2009 to serve rapidly expanding markets for utility-scale solar power generation and high-performance LEDs, driven by the increasing global focus on energy-efficient devices and systems.

“Our focus on reducing costs and investing in infrastructure and new product innovation has positioned IQE strongly to benefit from any upturn in the semiconductor market and the global emphasis on energy efficiency,” says group president & CEO Dr Drew Nelson. “We were strongly cash generative in 2008 and expect free cash generation to improve significantly in 2009 now that our infrastructure investment program has been completed,” he adds.

IQE expects to report preliminary 2008 results in the week commencing 22 March.

See related items:

IQE formally opens new Singapore plant

IQE reports growth in sales and profit

See: IQE Company Profile

Search: IQE Epiwafers Substrates

Visit: www.iqep.com