5 June 2012

IQE acquires RFMD’s MBE unit and secures seven-year wafer supply agreement

Epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK has signed what is described as a multi-faceted agreement to acquire the entire in-house molecular beam epitaxy (MBE) epiwafer manufacturing unit of RF Micro Devices Inc of Greensboro, NC, USA (which supplies wafer starting material to RFMD’s chip-making facilities, which it will continue to own and operate in Greensboro and Newton Aycliffe, UK). As part of the deal, IQE acquires a fully furnished epi manufacturing plant, including 16 operational MBE tools.

RFMD’s gallium arsenide (GaAs) products incorporate transistor layers grown on either an MBE or a metal-organic chemical vapor deposition (MOCVD) process. The firm outsources all MOCVD-based starting material and, with the completion of the transfer, it will outsource MBE-based starting material.

“This landmark agreement with RFMD, one of the true global leaders in the wireless semiconductor industry, provides us with a significant step up in our manufacturing capacity, bringing substantial financial and scale benefits,” says IQE’s president and CEO Dr Drew Nelson. “This is a clear win-win for both organizations,” he adds.

The assets being transferred to IQE include a fully fitted cleanroom of over 90,000ft2, 16 MBE manufacturing systems and equipment, all housed in a 135,000ft2 stand-alone building in Greensboro. The value of the transferred assets is about $27m. The local management and employees for the unit (consisting of 70 people) will also transfer directly to IQE.

In exchange for the transfer of the assets, there will be no upfront cash outlay (resulting in no IQE shareholder dilution). Instead, the parties have agreed to a seven-year wafer supply agreement, with a minimum purchase commitment of $55m over the first two years, whereby IQE will exclusively supply all of RFMD’s MBE wafer requirements and a majority of its MOCVD wafer requirements under a discounted pricing arrangement.

“The deal secures IQE world-class epi-wafer production assets and staff, together with a long-term wafer supply agreement, further strengthening our leadership position in the supply of wafers to the global wireless industry,” Nelson says. The firm says that the transaction will result in major enhancements across all its key group activities, particularly in its products for the wireless sector through increased purchasing power and greater manufacturing efficiencies.

IQE intends to use unallocated capacity from the transferred MBE facility to rapidly accelerate its wafer supply to meet the dramatically growing demand for concentrator photovoltaic (CPV) solar products in relation to its technology transfer and exclusive wafer supply agreement with Solar Junction, announced in February. This is expected to allow CPV wafer production with annual revenue capacity of up to $35m, without the need for significant up-front capital expenditures.

The transaction between RFMD and IQE is expected to close within a few days. IQE says that it will be immediately revenue and earnings enhancing, while free cash flow generation will reflect the discounted wafer pricing agreed between the parties. The transaction should be significantly earnings accretive in future years.

Similarly, RFMD expects that the transfer agreement and outsourced wafer supply model will improve its operating performance by lowering its manufacturing costs, starting in the September quarter. RFMD currently estimates that, in the June quarter, the transaction will result in a non-cash GAAP charge of $0.02-0.03 related to equipment and inventory write-offs, and will be approximately neutral to non-GAAP operating results.

“We expect this transaction will provide RFMD with lower MBE and MOCVD pricing, higher return on invested capital (ROIC), and more predictable operating results,” says RFMD’s president & CEO Bob Bruggeworth. “This is a mutually beneficial transaction for both RFMD and IQE,” he believes.

See related items:

IQE raises £10.5m and invests in CPV cell developer Solar Junction

Tags: IQE RFMD MBE GaAs epiwafers

Visit: www.rfmd.com

Visit: www.iqep.com