Iqe Share Discussion Threads

[picobird] 05/6/2018 12:49

Another humongous & detailed report by the guy with the ‘crown’, at least it would have been easy to have spotted him at the AGM.
Thanks very much Sweenoid for sharing with us ‘Average Joes’ 😊

[fuji99] 05/6/2018 12:39

Nice to have information, almost from within, including one's perception and opinions on good prospects and things to come. Thanks Sweenoid for sharing.

[glawsiain] 05/6/2018 12:18

Brilliant write up Sweenoid. Many thanks for your IQE communication over the years.

[mad foetus] 05/6/2018 12:05

It is a very good write up. The challenge is imo for the board to make sure the city hears it loud and clear and also to get a main market or dual Nasdaq listing. Also, as mentioned earlier, if anybody still regards IQE as a manufacturer that needs to be corrected. Talk of a licensing model is fantastic: we want the sort of leverage that gives and we need to attract product premium from our IP. Everything seems to be going in the right direction though, just wish the share price would reflect this.

[bocase] 05/6/2018 11:50

Dave:

Thank you for the report and taking so much time to share your views.

Good luck with the hangover.

[sweenoid] 05/6/2018 11:37

Kilgallp- July

My AGM report-sit down, make a cup of tea.

If anybody saw two middle-aged men wandering circuitously down Penarth High Street last night I hold my hands up and admit that Ken ( Hammerd)and I were responsible.! The AGM this year was a very successful affair, I took no written notes so the following is a summary of what I can recall after rather a boozy( understatement) post AGM, please can other attendees dot the I’s and cross the t’s and fill in what I have left out ( thanks Xylos for your contributions)

First things first, it was a delight to meet so many other investors- too numerous to mention, The usual number count for previous AGMs was approximately 6 to 10, so I’m sure that management were relieved that they had hired a large venue for this year’s meeting, because it was extremely well attended (60-70?).
Yesterday’s RNS was a very welcome start to the day, with 2 highlights for me, 1st the obvious statement “ we are actively engaged in VCSEL qualification programmes with over 10 additional key VCSEL chip manufacturers, which are progressing in line with the board’s expectations”, I bet anything that no one reading this can name half of those New customers ;-), I certainly can’t, that list must occupy almost the entirety of worldwide VCSEL chip firms,remember that list WILL NOT include Lumentum and Himax and Finisar who ( imho)we are already supplying ( the 1st is the biggie). I Will come back to this when I discuss competition later in what is likely to be a very long read.

The second main highlight for me of the RNS was the future appointment of Phil Smith to non-executive Chairman, which in large part answered my intended succession planning question.Phil Smith was my preferred first choice and I’m absolutely delighted ,as everyone should be, this guy is high calibre.He was CEO of Cisco for many years , he has a huge reputation in the industry and is widely respected and I can’t think of anybody better suited to replace Godfrey Ainsworth in the chair. As a new non- exec last year and now a veteran, he did his best to introduce and chat to as many investors as possible, a top class acquisition as a future chairman. In my conversation with him, he made his ambitions for the company clear, his enthusiasm and optimism was obvious and infectious, he is a good and natural communicator and will be a massive asset to IQE going forward

OK, the meeting and in no particular order, 1st the all important ‘competition’ question. To be honest and frank, our CEO basically forensically ‘dissed’ them, whilst demonstrating no complacency at all. He reiterated that the ‘outsource model’ is the way to go, for chip manufacturers and the barriers to entry. I have talked a lot about this in the past, so won’t repeat myself, but the key message to take away is the following, and imho this forms almost the entirety of IQE’s competitive advantage in the next 5 years. IQE is WINNING market share from its competitors in the ‘wireless̵7; division, despite the opposition being aggressive on pricing!epitaxy for wireless wafer epitaxy is relatively simple, each wafer having only 10-20layers. What hope have they got of ‘stealing̵7; IQE’s VCSEL business where wafers contain near 400 layers? , and are magnitudes more difficult to design and manufacture, whilst IQE are pinching their bread and butter business from under their feet? I would discount serious opposition emerging for many years to come...and so does the CEO, he went through every competitor they have and explained why that is the case, I thought he was rather persuasive;-)

Next,Patents and the possibility for new licensing revenues :-)

IQE have acquired a rich vein of patents, in 3 interesting area’s,cREO and most recently Quasi Photonic Crystals (QPC).   This advanced materials technology complements the Group's organic development of NanoImprint Lithography ("NIL"), and broadens the potential application of NIL beyond IQE's current focus on advanced DFB lasers.  Indeed, the patents acquired have applications in Optical components including VCSEL and edge emitting lasers,modulators, silicon photonics, fibre optic systems, micro LED displays, image sensors including Diffractive Optical Elements (DOE) and biosensors.
The cREO and QPC patents were acquired for peanuts -relative to their earnings potential-$5million and $500,000 respectively. Very interestingly the QPC patents were independently valued at $60million 3 years ago! So how did IQE get these patents so cheaply, the QPC in particular, well Silex( cREO) and Luxtaltek ( QPC) had no route to monetise their patents, they were literally stuck with great IP but no way to use it - a bit like being given £1million for a shopping spree for 4 hours when all the shops are closed- it’s worthless ;-). They were both prepared to literally give it away for a royalty stream down the line when IQE had ‘enabled’; and ‘monetisedR17;their technology.
just think about this potential scenario, it’s possible. CMOS is a huge growth area ( Compound Semiconductor material on silicon) but its complex and difficult because the 2 materials basically don’t like being combined-a specifically designed ‘layer’ of cREO between the two, solves the issue. Now consider IQE Licensing this patented technology to someone like ....Intel, for a licence fee and a royalty revenue stream, mmmmm gets interesting doesn’t it, and the absolute beauty is that there can be no patent infringement by all licensee or competitors, all you have to do is snap a wafer in half, demonstrate the cREO layer and bobs your uncle, there’s the infringement , no costly patent infringement costs ;-).
after yesterday I think there are multiple opportunities with cREO, NIL and fascinatingly with QPC to generate a very meaningful revenue.

Behind the scenes IQE have and are, actively engaging with institutional investors, recently they attended investor roadshows in New York, Boston and San Francisco, the CEO is visiting a major US investor in 2 weeks at the investors request. It’s interesting that institutions that participated in the recent offering are telling IQE that they are picking up shares from PI’s as the share price has reduced. IQE are intent on increasing the % of institutions and are finding the USA investors much more tech savvy.
It’s interesting that in previous years the Chairman has expressly rejected an imminent move to the ‘ main market’, that attitude has softened and from discussions yesterday I think that move will occur in 2019, indeed without Phil’s tragic death I think it may indeed have been announced this year? This will be done with the single aim ( excuse the pun) of increasing institutional interest. So there is indeed a huge amount of activity going on , but they aren’t communicating that.

That brings us to IR and PR. I think I, in a direct comment to Drew Nelson mid presentation, and also many other investors in one on one’s, made it clear that IQE simply has to do this better. We understand the restrictions imposed by NDA’s BUT there are always ways and means of improving news-flow,without infringing confidentiality. As a simple example I stated that the ‘events page’ on the IQE web-site contained NO onward events, this simply can’t be true- just adding details of investor roadshows, presentation that ARE occurring , would be positive, there are many more examples, that don’t involve issuing an RNS ,the KEY thing is that they got the message, certainly the incoming Chairman and all the board did, I actually expect some changes, we shall see. It’s irritating me already that the AGM presentation is not up on the web-site, that’s a small but glaring and consistent error that’s totally unacceptable!What is obvious, is that the fluctuations in share price is being largely and almost entirely driven by us - PI’s. The key engagements with institutional investors are taking place all the time and they seem intent on adding Whilst PI’s subtract and trade ( simplistic but probably true).Obviously shorter’s have an effect, but frankly I think it’s overstated.

The future market for VCSELS is indeed huge, however,the CEO was at pains to point out that our VCSEL revenue at present is almost entirely from 1 smartphone, of course that will change soon. I asked the question about VCSELS v EE ( edge emitting) lasers , as it seems some of the Android smartphones will have EE’s, in short, IQE confirm that they produce BOTH , but interestingly the CEO restated that VCSELS are the far better option and that he believed ( he should know) that in fact the majority of the Asian handset companies WILL be using VCSELS ,which will no doubt be more profitable for us.

Of course the massive markets for VCSELS come not only from wireless applications but from 2020 onwards from industrial and automotive applications. The autonomous car with its LIDAR systems has a huge demand in VCSELS - the MOST amazing fact learned at yesterday’s AGM is that, the the VCSEL constituent of a 2020 car could be so large that ONE SINGLE VCSEL WAFER would be needed to supply ONLY 16 cars! WOW , that’s perhaps why the new Newport factory has space for 100reactors , a 6inch VCSEL wafer probably costs £8000 quid now ( obviously will come down as volume production occurs)and can probably be used to make a few thousand phones , but only 16 vehicles- go work out the revenues.The CEO was again at pains to explain clearly why IQE’s VCSELS are the best, you either believe him or you don’t, I don’t care, the proof is in the pudding- the CUSTOMERS do ( read the RNS).He once again gave a detailed believable explanation of why this is the case.

Hammerd and others bought up the issue of the number of new reactors that have been placed and are on order. Hammerd , and others are unhappy that with the obvious future demand and the 6-12 month acquisition/ fitting/ validating time, should mean that more reactors should be on order.The CEO could not be shifted from IQE’s position of prudent acquisition to ensure full capacity as and when it is needed, rather than before, remember their customers and the market WILL be informing them,rather than spending now and the machines potentially sitting idle. It seems sensible to me , 2018 and 2019 will see a surge in demand but it looks like those extra 10-15 reactors in addition to existing infrastructure will probably suffice. The massive demand looks likely to come late 2019/2020onwards where if everything goes according to predictions it looks like that factory will be filling up, in the short to medium term VCSEL demand will be very large but dependent on Apple and on the Android camp getting its act in order. Having 10 redundant reactors , with 30people sitting on their ars$s doing nothing would not be good business?

I bought up the issue of the 2017 tax charge with the chairman, IQE in its 2017 RNS expresses disappointment with their previous professional advisors and indicated that they would be seeking recompense, no mention has been made since, hence my query. Obviously IQE can’t claim back the tax that was owed, what they can do is pursue the advisors for costs, interest and ‘harm’ done to reputation. Obviously any litigation is costly, sensitive and difficult as one of the advisors has been acquired, but Dr Ainsworth reassured me, that this matter is still very much on his radar and is being actively pursued.

As always, I like to look directors ‘in the eye’ and assess body language and tone, nothing that I saw yesterday persuades me other than we have a board of high integrity. All the board are determined that Phil’s legacy will be remembered and the foundations , mentoring and planning he helped institute will result in great rewards for its shareholders.On the corporate side We obviously need that new non-exec, that’s a given,but after hosting the delightful DPMeyer at our barn the night before( another boozy one), I am persuaded by him,( he himself is a non-exec Chairman) that we may need, especially if we move to the FTSE another senior board position, something to think about?

I didn’t go on the tour, I have seen the existing facilities and the new site externally many times, sheer numbers of investors prevented an internal tour, a pity as I was looking forward to that, that will hopefully be remedied sometime in July, I shall report back.

This is my 5th IQE AGM report,it’s instructive and important for me to state that at each meeting I have come away positively ( easier yesterday than when the share price was 17p!). Plans and aspirations set out 5 years ago have largely come true, opportunities are being converted to solid business and revenue generation,markets are opening up, and 5G awaits, acquisitions have largely been successful. With an unrivalled breadth of a technology portfolio and a route to a license and royalty stream, enabled by a vast array of patents, I am confident about the future, the key is, so is the board. :-)I can live with with the frustrating share price gyrations , but I would be incredulous if the share price is not significantly higher during 2018.....but I would say that.Nothing is certain.

I was disappointed that Apple didn’t introduce a new 3D sensing iPad Pro yesterday and would be disappointed if the Android camp don’t get a meaningful volume of high end 3D sensing/ facial recognition smartphones on the market in early 2019 ( hopefully at least a few for Xmas season), there are many imponderables, but as long as you don’t ‘bet’ what you can’t afford to lose you will be safe. My holding is definitely ‘locked away’

That’s me for the day, where is the aspirin ;-), one thing IS certain in life,attending AGM’s and the after event food and drinkies with Hammerd, should carry a government health warning ⚠️ :-)

Lovely to meet so many of you yesterday
Dave

[kilgallp] 05/6/2018 10:35

Guys, thanks for the feedback from the AGM. We know new machines have been delivered, did they give any idea of when they'll be in production? TIA

[a0469514] 05/6/2018 10:02

One of the fascinating things I learned was that when they buy in a new machine from Aixtron , they immediately set about modifying it to make it more efficient. Aixtron do not know what they do and would love to know but it is IQE's big secret. Obviously they could order the machines with the modifications incorporated and save the the trouble of modifying them themselves. But then the secret would be out and Aixtron would add this into their standard spec to the benefit of their other customers. Once the machine is up and running, in its super clean environment, it is operated robotically for up to 5 days, round the clock, without human intervention. In fact human contact is bad because much of the dust in the air comes from humans and dust is bad because that affects the yield of final chips which can be obtained from the wafer. The yield is all important and makes IQE's wafers superior to those of any other supplier.Xylos

[owenga] 05/6/2018 08:46

Lol, I love your dry wit!

[fuji99] 05/6/2018 08:37

I've been told the AGM impressed a lot the institutions and analysts.
Many remaining shorts will close. I wouldn't stay exposed if I were one of them...

[solderflux] 05/6/2018 08:21

Expansion does not affect profitability to a large degree as profitability is driven by your revenue and your costs to achieve that. Expansion costs are capital costs which are capitalised until revenue is achieved through those lines. All expansion requires is use of cash (from profits/financing). Therefore as long as there is profit to be made from new lines, you would go for them. Furthermore there are favourable R&D tax credits available for UK companies for R&D costs.

[shanklin] 05/6/2018 08:13

mad foetus

Agreed. I would not be invested here if it was a foundry with no moat.

[mad foetus] 05/6/2018 08:08

Good point Shanklin. But I saw an interview with Leon Boros where he said he couldn't get excited about IQE because it was, when all is said and done, a foundry. The challenge is for the company to clearly be positioned as a high-tech, intellectual property business rather than as a manufacturer. At that point we can justify a higher premium. There has been lots of talk about this in recent statements, we just have to persuade the market.

[shanklin] 05/6/2018 08:04

mad foetus

Re post 17605, I guess that called be called the "Amazon problem"

Cheers, Martin

[mad foetus] 05/6/2018 07:37

I think, and feel free to disagree, that the main challenge facing IQE is growing capacity to take advantage of a rapidly expanding market while retaining some profitability. Spending all your income on more tools and more research is good for the long term, but does leave the company open to people who say "but where are the profits". The need to strike that balance and to communicate it to the city really makes the appointment of PRs successor a key one. But all sounds positive, and I like the planned succession.

[senor_sensible] 05/6/2018 07:27

from ONsemi recent update:

- Have increased CAPEX to 8%-9% of sales for 2018 and 2019 to keep up with demand, want to go back to the 7% of their “model” afterwards
- See strong demand continuing 2018/2019 due to drive from Automotive, Industrial, and Servers
-- Made a big point about their internal raw wafer supply capability and will invest 60 M$ to expand
- Pricing development “favorableR21;
- Growth drivers PowerMOS in Automotive, IGBT, medium and high voltage PowerMOS plus Power Modules in Industrial
- Assume 4..5% revenue in SiC/GaN four years from now
- Increased R&D for automotive and Industrial above original plan
- Grown capacity compared to last year “low double digit”

The industry Is Growing rapidly, All Si/GaN Wafer companies are trying to grow capacity ready for a long period of growth..........

[bocase] 05/6/2018 07:15

A046514 Xylos:

Thank you for your very informative and comforting feedback and insights.

Much appreciated.

[a0469514] 05/6/2018 07:08

I had not been to an AGM before but came away VERY comfortable that my money is in the right place and it was a very worthwhile experience. The size of the market does indeed seem to be exploding and barriers to entry for competitors are formidable. I was impressed that Drew Nelson accepted questions and interruptions throughout his presentation and dealt with them very competently. There were many pleas for more information to be put out into the market. They said they were listening but somehow, I don't think much will change. It is just not their style. On the bus tour Chris Meadows explained that they were extremely tightly constrained by non disclosure agreements. He has files full of draft press releases that never see the light of day because under the nda they have to be approved by the partners and they veto them. Even when they don't name names, they claim that people would easily work out who the partner is and so still will not allow publication. So I have some sympathy. However one example came to light on the bus trip - that of GaN on silica which he confirmed (well, near enough) that IQE is partnering with Macom in USA and ST Micro in Europe. They manufacture most of those in their Massachusetts plant. Furthermore he sees that market exploding so that in 5 years say, it could be one of their biggest earners. So I asked `If you can tell us that on the bus why can't you tell the markets?` He claimed that he had but then maybe I must have missed it. There is tons more I could write about, and maybe I will, but I think the overwhelming conclusion was that ok the shareprice is depressed in the short term but this gives a huge opportunity to get in cheap. They had done an analysis of daily share trading and it seems that most of it is by smallish retail traders. So they see the answer to get more shares into `safe` institutional hands and they spend a lot of time and effort courting American institutions in particular. I don't think many in the room saw American institutions, who then go and loan out their shares to shorters, as the `good guys` though. If most of the trading is by small UK punters, then they could easily be influenced by more pro active press releases. So Chris, if you read this (and it is clear that they do) then please listen to your shareholders and feed a bit more of your incredibly bullish story out into the open - somehow.Perhaps more later.Xylos

[boleyn] 04/6/2018 22:33

Lost in France mate

[mad foetus] 04/6/2018 21:51

I would have gone myself if I had realised nobody would be reporting back. Have noticed that hammerd and sheep have been quiet recently, perhaps they have left the ship.

[belt n braces] 04/6/2018 21:12

pretty sure the sandwiches and sausage rolls would have been good