Iqe Share Discussion Threads

[hoverflyman] 03/9/2018 10:13

Re that article it is almost as if the author wrote negatively in irritation at not having his calls to IQE taken over three days. Poor Company PR ... could have invited MCCrum to the analyst meeting, or has that been and gone?!

[poombear] 03/9/2018 10:12

Well coordinated short attack. Timing is everything.

[richardc77] 03/9/2018 10:05

Factoring in all the negativity of the past Qtr (which we all knew about) but none of the future ramp, or any understanding of 5G which will not just see an increase in IQE share price but will see a re rate I believe for many companies. None of which is factored in on IQE.

Where were these market sages when IQE was over valued at £1.78? Oh yes they wait til 96p, when they missed the boat of making a valid point. 95% of analysts are just pointless and churn out of date poorly researched, often copied from other source nonsense...don’;t ask me who the decent 5% are mind!

[mhassanriaz] 03/9/2018 09:58

Another Article just like Muddy. There is no mention about 20 OEMs. There is no mention about 5g, Lidar or wireleas technology. I would have believed it if the article mentioned that there is no cash and where all the money ia gone. IQE is certianly is not one trick pony. The whole is to hit the price and buy to close large positions. Desperate actions to cover as we approach Iphone launch and IQE roadshow and various other talks.

[bocase] 03/9/2018 09:55

I would give little credence to this report. Barnet Peter thinks the stocks have crazy valuations. Yes some do but IQE is on a PE of just over 20 for a company growing earnings at close to 50% putting them on. PEG of 0.7

That is cheap against any metric and with fund managers returning to their desks this week I am confident that this is the last throw of the shorters’ dice before the trend reverses going into the autumn

[hoverflyman] 03/9/2018 09:51

Richard here’s the text (you can register for free). I think the author underestimates the imminent ramp, and also the likely expanding Apple and other requirements.

IQE: lumpy 'Apple' sauce at the pricey Cardiff chip shop

5 HOURS AGO By: Dan MC Crum
IQE is the UK stock market's next great chip-making hope. It isn't a start-up, however. Drew Nelson, who still runs it, co-founded the Welsh semiconductor group 30 years ago.

It also isn't by any stretch the next ARM, a chip-design group bought by Softbank for £24bn two years ago. IQE manufactures wafers (which, like the chips they are used to make sound edible but aren't) as part of a long and competitive supply chain for electronics, meaning it must always sink money into facilities, machinery, and research, to keep up.

Instead, the company is best understood as an example of what a brush with Apple can have on the perception and valuation of a tiny company. The share price more than quadrupled last year on whispers it had become a supplier of parts for the newest iPhone:



Even with some enthusiasm fading, the shares are still worth almost £800m, around thirty times what a handful of analysts expect the group to generate in earnings this year. In light of half-year results last week, that valuation looks mad.

For instance, the company said sales to its largest customer in photonics were flat on the same period last year. IQE makes wafers used in photonic applications, in particular Vertical Cavity Surface Emitting Lasers (VCSELs), and the customer is generally understood to be Apple.

Except it isn't. Apple is the ultimate end customer, but the direct client is Taiwan's Win Semi.

The best guess of the supply chain appears to be that IQE sells wafers to Win, which manufactures on behalf of the “fabless”; Lumentum, a Nasdaq-listed US group. Above Win is AMS, the Austrian-headquartered semiconductor group, listed in Switzerland. Taiwan's Foxconn then assembles the iPhones in China. For ease, we'll refer to the extended chain as “Apple”.

Last year, “Apple” paid IQE £23m, out of total revenues of £155m, according to the company's disclosure. IQE sales overall increased only £21m, with almost a third of that rise a benefit from currency movements. So the rest of IQE's non “Apple” business shrank.

What this means is the transformation of IQE into a much-hyped growth stock, increasing its valuation by more than half a billion pounds, was entirely due to the arrival of “Apple”.


Yet sales to “Apple” collapsed in the first six months of the year, to what they were in the first half of last year in constant currency terms. The progression over the last two years looks like this:


The company said in its announcement of results the reason was inventory “from the very successful and aggressive first mass market ramp” was still hanging around in the supply chain.

The interpretation of brokers -- IQE executives did not respond to several requests over three days to discuss the results -- is that “Apple” stocked up on parts for initial production of the iPhone X, and manufacturing was then paused this year.

The extent to which it comes back is an important question. In July, Win Semi disappointed the market with surprisingly weak guidance for the third quarter, which analysts at CLSA called “a disaster”. The VCSEL business would decline in the third quarter, Win said, adding it would be very hard to grow revenues year-on-year in the second half of 2018.

Here's CLSA, explaining what happened in an analyst note:

The 3Q decline of RF and VCSEL is surprising given the typically seasonal ramp for new iPhone. WinSerni attributes the RF decline to customers' inventory pre-build in 2H17-7H78 when its capacity was super tight. For VCSEL, it is partly due to the prebuild in 1H18 as there are no significant spec changes, and partly due to the improving 3D sensing packaging/module yield. Our supply chain checks and calculation suggest there is as much as 40m equivalent 3D sensing module overbuilt, which means only another new 50m modules need to be produced in 2H18. Thus we do not expect a dramatic rebound in 4Q18 either. Even worse, what about the capex/capacity WinSemi has spent/expanded for Apple?
The eternal problem for semiconductor companies is making a decent return on the capital they must sink into businesses which become rapidly commoditised. Revenues tend not to be a problem in a commodity business, as there are always buyers in the market, but the price and the profit prove beyond control.

In VCSELs, Texan group Finisar recently cut the ribbon on a new factory. Pittsburgh-headquartered II-VI last year acquired a UK site to add to its capacity.

IQE more than made up the drop in sales to “Apple” with new customers, but what's striking is that profitability was down across the board in the first half of the year, at a gross, operating and net margin basis, even as it reported substantial sales growth.

To some, that might suggest a supplier to commodity markets with little pricing power, but IQE had a threefold explanation. One was currency, due to a stronger pound compared with the same period last year, which suggests a significant risk factor given the uncertain path of Brexit.

Another excuse was the cost of switching some machines from photonics to wafer production, which seems odd given wireless sales were only 11 per cent higher than the same period in 2017.

IQE also pointed to “foundry-pre production costs of £0.9m”. The question here is why aren't these capitalised, if they relate to future production?

A possible answer might be that a company can only capitalise so much of its expenses, and IQE already undertakes substantial capital investment. Capitalised research and development expenses were £6.4m in the first half of this year, costs that would have pushed the company into losses were they taken through the income statement.

Indeed, the story of IQE is of a company which doesn't produce free cash flow on any sort of regular or bountiful basis, ie has some left over after investments in machinery, facilities, research and those capitalised costs. It raised £95m of cash from a placing in November, leaving it with net cash of £41m at last count.

Substantial investment plans look likely to consume that, and anything else the business produces: another £59m to £82m of capital investment is planned over the next 18 months. In the last year the business generated net cash from its operations of just £20m.

It is of course possible a transformation of the business lies ahead. Maybe staggering growth in wafer sales will come without triggering a competitive response, and cash will peter our in from Cardiff.

The long history of IQE suggests another lesson, however:


Every long cycle brings a new set of investors to the story of the chip company which might, but doesn't.

[cheek212] 03/9/2018 09:44

Can't read the article as subscription only and wouldn't waste my money reading anything written by Dan McCrummy anyway. I am told he has a habit of writing negative articles on heavily shorted shares - one would think that perhaps he could be in the employ of shorters when writing these negative articles. A last roll of the dice for the foolish shorters - Marshall Wace have done the right thing and reduced their position considerably and pocketed their profits. The more recent shorters are now looking more desperate ahead of next weeks Apple news.

[barnetpeter] 03/9/2018 09:37

I remain short of this. I see little value at this level and I fully expect a sudden fall. Bit like foot today and cwd too...different businesses but all late bull mkt stocks that are way over priced. Crazy valuation here but just imo.

[richardc77] 03/9/2018 09:35

Grity, read Fridays posts, Sweenoid still holds here but won’t be posting again.

Can you copy and paste the FT report?

[grity] 03/9/2018 09:33

Is that ft article implying there going to be a cash call soon ? Another point is when did this 3 year rent free period start? Are we already a year into it .

Dave ( sweenoid) your opinions would be much appreciated as the dark clouds have started to decend .

[adejuk] 03/9/2018 09:32

why would anyone believe the bear case from alpha when it is mostly conjecture about the next 12 months? in the end it has the same status as a bb post.

[jamesrowe] 03/9/2018 08:53

Adventurous I had forgotten about the subcontracting/outsourcing of production. If IQE knows that it will at some point lose a significant chunk of Apple business so that Apple can get a second source, is it possible that IQE would help Finistar in order to get a license fee out of it even though they are a competitor??

[chessmaster10] 03/9/2018 08:40

Don't think this has been posted. Food for thought, unfortunately.

[davemac3] 03/9/2018 08:16

Lucky Mouse, the breakdown scenario above is normally about a prior move down

[davemac3] 03/9/2018 08:16

Lucky Mouse, the breakdown scenario above is normally about a prior move down

[adventurous] 03/9/2018 07:49

JamesRowe - Oh yes I had forgotten about that. I was quoting from the LEDinside Dec 2017. I had also forgotten that IQE has previously stated they would subcontract some of the 'peaks' - so I guess, IQE may control their production within the licence terms for the technology knowhow!!

[richardc77] 02/9/2018 17:57

Sheepy knows best that’s why he held on from £1.78 down to selling just above £1 to get the shares back at 80p, which I doubt will materialise.

Sheepy is a faultless investor and sage

Not ;)

[cotswoldsparky] 02/9/2018 16:50

Dave,

Just want to add my thanks for all the research and opinions you have posted on here and other BBs over the years. I enjoyed meeting you and Ken on the factory tour and having some sensible, intelligent discussions about the business - totally understand and share your frustrations over this BB.

Hope you enjoy your retirement and historical studies - I like to think that given your investment in IQE and your acquired wealth, the story of cREOsus* was one of the first texts you read ;-)

CS

* my apologies in advance for the extremely poor pun (and spelling)!

[cotswoldsparky] 02/9/2018 16:26

I've been away for a bit and thought I'd logged on to the wrong board, there were so many posts about VRS.

For those who think graphene is a threat to IQE, or those who think IQE and VRS should team up (presumably on the grounds that they hold shares in both), this may be of interest,

Relevance to IQE is about 3.5 minutes in, comments about graphene replacing silicon. This was also mentioned at the AGM (or might have been on the bus tour) where IQE said pretty much the same thing. BOD are maintaining a watching brief over the technology but don't see near-term requirements.

Enjoy.

CS

[cotswoldsparky] 02/9/2018 16:05

crunk,

How long have you been invested in IQE? Try reading this (again!), it might help



CS

[thecrunk] 02/9/2018 15:08

Question.

IQR bought and paid for their 10 reactors allready. They are cash flow positive.

Whats the 40m cash for?

I assume its for their 2019 HI reactor orders.

When will we hear how many reactors they buying next after these ten?