News: Suppliers
24 November 2021
IQE’s full-year 2021 constant-currency revenue to be down 8%
Epiwafer and substrate maker IQE plc of Cardiff, UK has announced a trading update for full-year 2021 as it faces ongoing foreign exchange headwinds.
Wireless update
In second-half 2021 demand for Wireless gallium arsenide (GaAs) epiwafers continued to grow, driven by 5G penetration of the smartphone handset market and WiFi 6. While growing year-on-year, GaAs volumes are below management expectations in fourth-quarter 2021, in the context of softening demand in the broader smartphone supply chain.
Despite the challenges of supply chain constraints in the broader semiconductor industry, the solid performance of GaAs throughout 2021 has resulted in high utilization at IQE’s Taiwan facility, where the firm is investing in eight new and refurbished tools. This includes three new Aixtron G4 metal-organic chemical vapor deposition (MOCVD) reactors, which are now on-site and being commissioned to support further growth in 2022.
Sales of Wireless gallium nitride (GaN) epiwafers have continued to be weak due to end-market dynamics, including significantly lower levels of massive MIMO (multiple-input, multiple-output) base-station deployments in Asia and the slow rate of deployments in Western markets. GaN remains an essential material for 5G infrastructure, notes IQE, and demand is still expected to recover over the multi-year deployment cycle.
Photonics update
Demand for vertical-cavity surface-emitting lasers (VCSELs) used in 3D sensing applications has remained solid throughout second-half 2021 but is expected to tail off towards the end of the year, in line with supply chain seasonality and general softening in smartphone supply chains.
Sales of other Photonics products are also below management expectations in Q4/2021 due to the re-phasing of certain defence and security orders associated with large programs into 2022 and the slower introduction of sales of new distributed feedback laser (DFB) products.
R&D update
IQE says that strong progress continues to be made on research and development programs, with significant milestones reached for long-wavelength VCSELs, advanced healthcare sensing, porous silicon for front-end module switching, and the commercialization of GaN-on-silicon technologies for infrastructure markets.
Operational progress
Operational progress has also been strong, with the closure of IQE’s Pennsylvania facility and associated consolidation of molecular beam epitaxy (MBE) capacity in North Carolina, which is on schedule for completion by 2024.
The recently announced closure of IQE’s Singapore facility is also on track and due to be completed by mid-2022. These closures are part of the firm’s consolidation strategy and will improve production efficiency and margins in the medium to long term, it is reckoned.
Outlook and guidance
A significant foreign exchange headwind has been incurred in 2021 on a reported basis, caused by the relative strength of Sterling versus the US Dollar (in which most of IQE’s revenues are denominated).
As a result of softening demand in Q4/2021, IQE now expects full-year reported revenue of £152m. This is equivalent to about £164m at constant currency, down 8% year-on-year.
The resultant reported adjusted EBITDA (earnings before interest, tax, depreciation and amortization) is expected to be £18m. At constant currency, this is equivalent to about £25m, an EBITDA margin of 15% (down from 2020’s 17%).
Cash capital expenditure (CapEx) is expected to be £14-17m, below the prior guidance of £20-30m due to the phasing of payments for certain tool purchases into 2022. Net debt is expected to be less than £10m.
“Whilst it is disappointing that 5G infrastructure deployments have remained weak all year, we still expect this macro trend to provide a multi-year growth cycle for IQE,” says interim executive chairman Phil Smith. “In the immediate term, broader semiconductor market shortages have softened demand in some supply chains, but we believe these effects to be temporary and remain excited by the opportunities ahead,” he adds.
“Meanwhile, IQE has made significant strategic and operational progress in 2021. This has laid strong foundations, which newly announced CEO Americo Lemos will look to capitalize on as he sets out his strategy for the future direction of the business next year,” Smith concludes.
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