2 October 2012

IQE’s first-half 2012 profit slashed due to Q1 inventory correction  

After reporting interim results for first-half 2012 at the beginning of August, epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK has confirmed revenue of £34.3m, down 10% on £38.3m the prior year due to an inventory correction related to market share swings at two major wireless customers during first-quarter 2012. EBITDA (earnings before interest, tax, depreciation and amortization) was £4m (down by a third, from £6.1m) and net debt has almost doubled (from £3.9m to £7.5m). However, this reflects the investment in capacity to service the growing wireless market (this major expansion program, which has spanned 2011 and 2012, will conclude in second-half 2012).

The firm has now reported detailed results, including operating profit of £0.2m (down from £3m, due mainly to the first-quarter inventory correction). Cash inflow from operations has more than halved from £5.9m to £2.8m.

“The inventory correction by two major customers concluded after the first quarter, as expected,” notes chief executive Dr Drew Nelson. Sales and customer order patterns have since returned to expected levels in Q2/2012. IQE is now returning to growth, driven by demand for wireless components for a wide range of connected devices including smartphones and tablet PC technologies together with increasing demand for the firm’s range of optoelectronic products.

Also, two ‘transformational’ and complementary transactions position IQE for accelerating growth and cash generation, it is reckoned.

During first-half 2012, IQE issued new equity of £11.4m, including a £10.5m share placing in February to fund investing in a strategic 9% equity stake in Solar Junction Corp (SJC) of San Jose, CA, USA, which manufactures III-V multi-junction solar cells for concentrating photovoltaic (CPV) modules, as well as capital equipment to service an exclusive wafer supply contract with the firm. The investment in SJC is expected to accelerate IQE’s strategy to become a leading global supplier of CPV wafers for solar power markets.

In June, IQE agreed to acquire the in-house MBE epitaxial wafer manufacturing unit of RF Micro Devices Inc of Greensboro, NC, USA. The transaction also included a seven-year supply agreement for the exclusive provision of all of RFMD’s MBE wafers and for the provision of a majority of RFMD’s MOCVD wafer requirements (effectively funded by future wafer discounts). IQE says that the RFMD agreement has also provided a significant step up in manufacturing capacity, bringing substantial financial and scale benefits.

“The transactions with Solar Junction and RFMD represent significant milestones in the execution of our growth strategy and will significantly enhance both our short- and long-term growth,” says Nelson. “They are highly complementary, extending our critical mass and global leadership in wireless, and bringing additional capacity to service the emerging high-growth CPV market,” he adds. Tool installation for Solar Junction remains on track as market demand continues to gather pace, says IQE. Also, IQE has completed full integration of the former RFMD epitaxial operation in North Carolina.

“The second half has started well and demand has returned, as expected, with the additional benefit of our newly acquired North Carolina business from RFMD,” says Nelson. In addition, sales have commenced on new BiHEMT qualifications.

“Given IQE’s strategic positioning and with our international capacity expansion program nearing completion, we remain confident of meeting current earnings expectations for the full year,” concludes Nelson.

See related items:

IQE expects revenue growth in second-half 2012 following Q2 recovery

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

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

Tags: IQE

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