News

15 July 2009

 

IQE sees sharp order pick up in May-June as destocking ends

In a trading update for first-half 2009 (ended 30 June), epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK says that it achieved a strong operating performance despite the industry-wide destocking that adversely affected sales in Q4/2008 and Q1/2009.

As anticipated in the 2008 preliminary announcement on 24 March, the destocking ran its course in early Q2/2009 and orders picked up sharply in May and June. IQE’s board therefore expects that the firm’s first-half performance will be at least in line with market expectations, with earnings before interest, tax, depreciation and amortization (EBITDA) of at least £1.2m on revenue of about £20m (compared to £60.5m for full-year 2008, though still down on £30m for first-half 2008).

IQE says that the sound financial performance during an extremely tough economic environment demonstrates the resilience of its business model. The action taken by management during Q4/2008 ensured that the business remained EBITDA positive even in January and February, at the lowest point in the cycle. IQE stresses that, as the business resumes rapid growth, it should continue to benefit from the lower costs and higher margins resulting from structural efficiencies achieved.

The increase in trading activity towards the end of the first half has seen some absorption of cash into working capital, reflecting higher trading volumes. Net debt is expected to be better than market expectations of about £20m as at 30 June, leaving more than £5m funding headroom. IQE says that it has been operating well within its banking arrangements, and the board expects net debt to decrease in second-half 2009.

Despite the continuing backdrop of global economic uncertainty, in second-half 2009 IQE expects continued strong growth in sales volumes, reflecting the firm's strong positioning in high-growth markets, principally wireless communications (including 3G and feature-rich smartphones).

In addition, new product development continues, with progress in solar activities (where customers are achieving world-record efficiency results) and in ultra-low-power LED products. Also, further progress on next-generation electronic materials was demonstrated by the recent release of new engineered substrates such as germanium on insulator (GeOI) for next-generation ICs and devices.

“We are seeing indicators of strong growth returning to a number of the high-end markets in which IQE operates and, as anticipated in the March trading outlook, it is the smartphone products that have been amongst the first to resume growth amongst our customer base,” says chief executive Dr Drew Nelson. IQE remains confident that strong demand for will resume in second-half 2009. “We are achieving optimal production efficiencies with lean operations across the group and expect to benefit from our high operational gearing as sales growth recovers,” adds Nelson.

IQE expects to report its interim results on 2 September.

See related item:

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

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