22 March 2012

IQE grows revenue and profit in 2011 despite Q4 wireless inventory corrections

For 2011, epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK has reported record revenue of £75.3m, up 4% on 2010’s £72.7m (or up 8% in US dollars), driven by increased sales volumes.

Revenue in first-half 2011 grew strongly by 23% in US dollars (16% in sterling). However, second-half revenue was impacted in fourth-quarter 2011 by inventory corrections at two major wireless customers. Despite this, full-year 2011 sales for wireless applications were level on 2010 at about £55.1m, although they fell from 76% of total revenue in 2010 to 73% in 2011.

Including the impact of the acquisition in 2010 of antimonide substrate maker Galaxy Compound Semiconductors Inc of Spokane, WA, USA, optoelectronics business continued to grow at a faster pace than the core wireless business, achieving year-on-year growth of more than 27% in US dollars (or 21% growth in sterling, from £15.4m in 2010 to £18.6m in 2011, rising from 21% of total revenue to 24.6%).

Electronics business fell from £2.2m in 2010 to £1.6m in 2011 (falling from 3% of total revenue to about 2%).

Reflecting continued strong management of costs, a beneficial product mix and further improved operating efficiencies, gross margin has continued to improve, from 22.8% to 24.1%. The increase in sales and the tight control of costs translated into earnings before interest, tax, depreciation and amortization (EBITDA) of £14m (up 6% on 2010’s £13.1m) and an operating profit of £7.4m (up from £7.2m).

Strong conversion of operating profit into cash delivered operating cash inflow of £10.8m (up from £10.3m). However, capital expenditure rose from 2010’s £5.6m to £17.4m, reflecting capacity expansion to meet anticipated sales growth. In addition, investment in new-product development rose from £3.4m to £3.7m. Hence, net debt at the end of 2011 was £3.9m (compared with net funds of £7m at the end of 2010).

“New product qualifications have progressed very well, with newly qualified products now ramping into production and other qualifications nearing completion,” says president & CEO Dr Drew Nelson. “Furthermore, our capacity expansion program remains on track, which is providing customers with a high degree of confidence in IQE as a key supplier [to satisfy their increasing demand and surge requirements] as they keep their allocation of supplier shares under review,” he adds.

IQE now supplies all 12 of the top RF wireless chip producers globally. The impact of any future inventory corrections as a result of temporary market share shifts is being mitigated by further product qualifications across all wireless products and customers, the firm says. When completed, these additional qualifications should result in a highly robust and risk-averse strategy, it adds. “Inventory corrections continued into the first quarter but, as anticipated, customer forecasts now reflect a return to growth, as expected for Q2 and onwards,” says Nelson.

“Our optoelectronics business has a number of near-term opportunities which have progressed well during 2011 and which could result in a number of key products ramping to volume production as early as 2013,” notes Nelson. “Following the year end [in February], we announced a strategic investment [taking a 9% stake] in Solar Junction Corp of San Jose, CA, USA [which makes III-V multi-junction solar cells for concentrated photovoltaic (CPV) modules] and an exclusive long-term supply agreement, a move that will accelerate our penetration into the exciting, third-generation CPV solar market,” he adds.

“The prospects for IQE’s wireless markets, coupled with continuing strength across the group’s other market sectors, mean that the board remains confident that IQE is well positioned to deliver strong growth in 2012 and beyond,” Nelson concludes.

See related items:

IQE reports year-on-year growth in revenue and profits

IQE’s first-half 2011 growth driven by smartphones and diversifying opto business

IQE reports record revenue and higher-than-expected profit for 2010

IQE revenue grows 54% year-on-year to record £33m in first-half 2010

IQE expects first-half 2010 revenue up 50% year-on-year

IQE rebounds by 46% to record £31.2m revenue in second-half 2009

IQE expects second-half 2009 revenue 45% up on first half

See: IQE Company Profile

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Visit: www.iqep.com