Iqe Share Discussion Threads

[sf5] 04/7/2022 10:11

Fully agree a dose of realism is called for. All the chip majors are down big time, eg SMH is off 30% this year. The advfn thread used to have mini-charts in the header but sadly they've been dropped in the current thread. Consumer products are indeed very soft - new phones are surely the ultimate discretionary purchase.

Maybe data centres and 5G infrastructure will hold up better to provide bread ad butter revenue?

But all this talk of VR headsets, Lidar in cars etc, is surely a drop in the ocean currently. Maybe Lidar will take off one day, but Level 4+ autonomy still seems a distant vision despite the billions invested to date, so for the time being lidar presumably will be limited to minor 'safety enhancements' with fairly limited commercial value?

Perhaps I'm too cynical but my take is that IQE will for some years be seen as a jam tomorrow company?

PS: just looked and remarkably SWKS is on a 30.9.22 forecast PE of just 8.2! Extremely low for a tech growth business. Problem I assume is forecast turnover growth is just 8%, 7%, 3% for the next 3 years. It will be hard for IQE to grow that fast when one of their major customers is facing such headwinds, unless they really can grow their product market beyond their current bread and butter.

[lord loads of lolly] 04/7/2022 09:08

I suspect consumer demand for new smartphones & pcs will be soft for some time, assuming there's relatively little in the way of "must upgrade" add-ons. Particularly given the costs involved. Why else would Apple be looking to offer payment by instalments? Which is why in the medium term I reckon lidar for autonomous vehicles will become so much more important to IQE. Lidar is in its infancy, whilst smartphones are already a relatively mature industry.

[lpavlou] 03/7/2022 13:26

Whilst not directly relevant, Micron hinted at reduced smart phones and PCs markets for the next quarter and OEMs having sufficient inventory having over-ordered previously. It's still tough out there don't expect IQE to be overly bullish on H2

[smorales] 03/7/2022 10:33

Americo Lemos appearing as witness in the Nexperia inquiry on Tuesday, together with other key players in the industry.



Will be available to stream online:-

[crosswires] 02/7/2022 11:38

I don’t think anyone was expecting them to beat in Sept earnings. There is no reason to think that would happen…it̵7;s all about March imo and what they say looking forward then. If by then it is not looking rosier then we may have to accept its time to sell IQE.

[guildedge] 01/7/2022 22:05

hxxps://research-centre.barclays.co.uk/shares/iqe/broker-views/broker-forecast/

Looks like these figures have been marginally raised. Still predicting losses for 2022 of -7.24m PBT.

2023 175.98m and a loss of £1.4m PBT.

Given they expect a stronger performance in H2 this could mean a loss of 3.5-4m in H1 with revenue around 79-80m? I doubt any of these new contracts will have arrived by then. So revenue of circa 82m in H2 unless they have suddenly found a large increase in new orders or revenue from price increases?

I can see why Sweenoid is a bit downcast. As at present if these numbers are right they will at best be meeting their forecasts. Losing 7-8m a year is not a great forecast.

[guildedge] 01/7/2022 17:31

For those still following shorts.
JPMorgan Asset Management (UK) Ltd increased from 0.68% to 0.82% on 30/06/2022. So up 0.14%.

[lord loads of lolly] 01/7/2022 10:27

jamesrowe - I agree some of their answers could have been better phrased to avoid any ambiguity. But I don't think you can read this as anything other than IQE raising its own prices where necessary: "We are actively working with them to manage the supply chains we are in and this has led to better communication, joint risk management and pragmatic problem solving. This includes price increases where necessary." Surely joint risk management wouldn't be joint if price increases were only absorbed by part of the supply chain?

[guildedge] 30/6/2022 18:36

For those still following shorts.
JPMorgan Asset Management (UK) Ltd increased from 0.55% to 0.68% on 29/06/2022.

[lpavlou] 30/6/2022 18:15

We'll done to IQE for publishing the answers on its website. This would not have happened under the previous regime.

[jamesrowe] 30/6/2022 18:05

Well done for asking the questions guildedge and for getting some replies. I don't want to pour cold water on some potentially promising news but "qualified multiple customers on our turnkey IQVCSEL™ product." could technically mean just 2 customers which would be bad news given the likely costs incurred to set this up. I really want to be positive here but IQE's track record in this regard is not good so we will just have to wait and see.

Also, the "raising prices where needs be" was a little ambiguous in the way that it was worded. It would be possible to interpret it as referring to the IQE suppliers rather than the IQE customers thus rasing the price paid for goods from suppliers in order to be able to obtain them which would really not be good news. I am always nervous when a company makes statements that are not 100% clear and unambiguous. Why not just say that we have managed to raise the prices paid by our customers rather than convoluted wording including supply chain & suppliers? There is usually a reason for convoluted wording.....

[lord loads of lolly] 30/6/2022 16:49

guildedge - exactly as you suggest, the main thing we learn from their answers is: "The big expansion in facilities has not so far resulted in higher revenues." Of course they'd like to see "100 reactors fully operational at the Welsh site". But at the moment, we don't even know how many of the 10 existing tools are utilised. And if they've the clout to increase prices in line with inflation, a low single digit % total revenue increase would suggest standing still at best. Despite asking a lot of pertinent questions, IMHO we're still having to wait until the next update for any meaningful clues. But then we're used to that by now with IQE!

[guildedge] 30/6/2022 16:22

I actually think we got some good answers from IQE.

Cost of living wise they mentioned raising prices where needs be. So it's reassuring they have the capacity to pass on costs.

'9. Is the ambition long term to have 100 reactors fully operational at the Welsh site? We would of course like to see this in the future. We will provide an update on our future strategy at our Capital Markets Day in the later part of the year.'

This shows they don't want to sit on 10 tools and long term they perhaps expect business to recover. It also shows that they would spend money on new tools if revenue takes off. So we can expect a large investment here over the years.


They were never going to answer the % of tools but we expected that. Better to ask factual questions.

'11. How is the process of one product fits all customers coming along? We have sampled and qualified multiple customers on our turnkey IQVCSEL™ product.'

Hopefully good news if one production line can deal with many customers.

'IQE experiences foreign exchange differences between reporting periods due to the majority of revenues being earned in USD and with financial reporting in GBP. These may sometimes be headwinds and sometimes tailwinds. We disclose constant currency growth percentages as these are a better reflection of the underlying performance of the business.

It should be noted that these headwinds or tailwinds are not realised losses or gains. They purely affect financial reporting and don’t impact the cashflows of the Group per se. Realised losses or gains are only incurred where currency is converted, for example from USD to GBP to fund the UK cost base. IQE uses a hedging strategy to smooth out the effects of foreign exchange movements on its cashflows that are converted.'

So likely staying in UK long term is my read of this. They hedge currency anyway. With Welsh site now a long term investment not suprising.


'13. Can you give a rough breakdown on how the £95m IPO in 2017 was spent?

The funds were predominantly used for the infrastructure phase of the capacity expansion which was completed over 2018 and 2019. This consolidated and expanded GaN capacity in Massachusetts, fitted out a new floor at our Taiwan facility and constructed the Newport Mega-Foundry. The residual was used for general corporate purposes.'

Which is why we got the following reply.

'14. Can you explain why in 2016 Selling, general and administrative expenses was at £16m and now 2021 we are at £37m. Yet profit has fallen away from £22m adjusted to a £8m adjusted loss, yet revenue is £22m higher? What does the Board feel the key change between now and then is that profitability in IQE has fallen away while costs have over doubled?

IQE is highly operationally geared, ie. has a high proportion of fixed costs. These fixed costs are higher now than in 2016 predominantly due to the infrastructure expansion of the Group and other investments in capability to grow the business. Growing volumes is key to leveraging the operational gearing and growing margins.

In addition, our global site optimisation programme will reduce fixed costs over time. We are committed to capturing value and delivering margins in line with peers over the medium term as we execute our strategy to increase volumes through strategic long term agreements and optimise our global manufacturing footprint.'

So we are where we are here. Strong profits depend on leveraging the fixed cost base which is now costing IQE nearly 37 million a year. The big expansion in facilities has not so far resulted in higher revenues. As I have said before IQE needs revenue of circa 175-180m to break even here. As any new orders are contributing to the fixed cost anyway. Break even analysis. Not that they should be taking on loss making orders to try and improve finances.

The question is where are we at now? They are suggesting low percentage rise in revenue this year. Yet inflation is hitting 8-11%? So if that was true in real terms revenue will have fallen unless they have hiked prices by a similar amount. Of course I would expect costs to soar above the 37m figure this year. See what happens but I will wait for the July update.

@sweenoid I think we have to back the new CEO. If they can't increase revenue here they should be closing sites to reduce costs. They talk medium term to match industry. This could be 3-4+ years?

[guildedge] 30/6/2022 11:47

Fyi i didn't chase them they found mine when they found Sweenoid questions.

Answers as expected. They are geared for much higher production hence why were no longer making 15-20m profits and why costs have doubled. So expansion has to happen or they will never make money. Most of 95m went on expansion. They want to long term have 100 tools in Wales as i suggested a few weeks back.

So reading things pretty well.

[sweenoid] 30/6/2022 11:29

Last post for me until we get some interesting news from customers or the trading update which I expect to be ‘in line’ so rather dull

Answers to questions were entirely as expected.

If one listens to Lemos then one has to wonder how such a unique company with such large markets and such potential as a must have technology provider for the 5G world has the revenues, earnings and more importantly the miserable share price it has! There is a total disconnect at present between the former and the latter.

I don’t know how anyone can remain invested here without a belief that Americo Lemos can reverse the mistakes of the past, I remain and am actually optimistic because he has both invested his own money in IQE but more importantly he stakes his reputation on delivering. I guess some just has a FOMA problem? I understand that but that’s not the way I invest, I have to believe rightly or wrongly that IQE has the ability to make a difference and Lemos is the catalyst.He has clarity of vision and has shown by side- lining cREO( or is it really abandoning it) that he is not afraid to make big strategic decisions. For too many years I have been hoodwinked into believing that IQE could enter the lucrative world of RF filters- Drew Nelson fed us a diet of expectation there for year after year after year and it transpires that the license acquisition and ongoing yearly payment were for nothing? But that’s already way in the past and I buy into Lemos’ vision which of course is dependent on fostering partnerships in a market driven approach. The days of developing technology that is not needed and has no market are truly gone but that doesn’t mean we should not do R&D, but it does mean that the expense is focused on known markets rather than hope and expectation that the market will come to us . Investors in Imagination Technology will know exactly what I mean.

Enjoy the good weather coming ☀️
S

[lord loads of lolly] 30/6/2022 10:19

sweenoid & guildedge - thanks for ensuring everyone's questions were addressed. Not sure we got terribly useful answers in some cases, but at least they now know shareholders' current concerns. There does finally seem to be more emphasis on margin growth, which is encouraging (though why it's not been the top priority all along is baffling).

[boboty] 30/6/2022 09:45

Lots of words but still don't know how they are doing - sort of looks like there is nothing to hide - nothing being the operative word.

[sweenoid] 30/6/2022 09:26

Answers to my and Guildedge questions now on the IQE website



S

[guildedge] 29/6/2022 17:59

I too got an email from Amy Barlow to say my email had been missed and I will get a response in due course. Likely a spam filter. All very professional which is good.

[lord loads of lolly] 29/6/2022 13:54

They do. And Lemos seems far more focused on sales & profit growth than his predecessor. But we have heard similar noises before. So for me it's now a waiting game (with a view to exiting at a decent profit hopefully), rather than a speculative "add & hope" play.

[guildedge] 29/6/2022 12:57

Finally listened to AGM. They do seem very confident about their tech going forward. They seem to have a long term plan. Interesting times.

[sweenoid] 29/6/2022 11:41

Amy Barlow has responded positively

Hi David,

You will most certainly get your questions answered.

Those which are directed to Americo may take longer to answer as he is currently travelling, but I will endeavour to provide you with a complete response as soon as possible.

Mistakes happen, the key is that they are put right.
My questions FWIW WERE

Our new CEO has recently stated that he wanted government backing and private investment to fund an expansion at Newport, a site that is not fully utilised at present, please square this circle- where is the demand seen coming from to justify the expansion?

2021 saw a marked slowdown in infrared revenues, some of this was put down to a delay in certain contracts that were moved back from 2021 to 2022, IQE stated “re-phasing of certain defence and security orders associated with large programmes into 2022” Can IQE confirm that it is now back on track with these orders, also can you comment on the present trading situation for this division.

IQE has made much of the competitive impact of its ability to produce 200mm VCSEL wafers, can you comment on how far ahead of our main competitor in this ability. Backin the day when IQE introduced the 1st 6inch VCSEL wafers much was made of a 18-24 month ‘lead’ does IQE believe is this being maintained with the 8inch wafers.

IQE is in a competitive market place, as such how can we retain market share whilst retaining and preferably increasing margins?

The move to a market driven approach where IQE puts its customers at the forefront of its thoughts is laudable but how is this actually being translated into winning business.

What does our new CEO believe is his biggest achievement since starting his tenure.

Does IQE see any signs of recovery in the 5G infrastructure rollout in particular the deployments that utilise our GAN on Silicon Carbide wafers.

Hope those can be answered
Best wishes to the Chairman , CEO, The board and all At IQE

S

[wattene] 29/6/2022 10:09

Thanks sweenoid for your informative posts...keep 'em coming.

[lord loads of lolly] 29/6/2022 10:01

The barriers some platforms impose in providing proof of share ownership (particularly with nominee accounts) can make it hard to attend AGMs (or even to submit questions remotely). Which is a major pain, particularly if the company concerned loses questions that are submitted online.

[sweenoid] 29/6/2022 09:48

More on that important announcement from Analog Devices Inc yesterday.

Lumentum comment
More exciting news for Lumentum! 🤩 We’re working with Analog Devices, Inc. to provide #VCSEL arrays for #LiDAR and #3Dsensing applications for their newest product, ADTF3175 module.

Check out what Lumentum’s Senior Vice President and General Manager of #3DSensing, Téa Williams said about this news 👀:

“We are thrilled to work with ADI on solutions for the industry’s most demanding and highest resolution 3D sensing applications, ranging from extended reality to industrial applications like robotics, intelligent buildings, and logistics systems.”

Seems that that relationship extends well beyond the announcement and that of course is very good news for IQE

RE IQE Q&A
NONE of my questions were answered which was bewildering, so I have contactedAmy Barlow at IQE and it transpires their IT dept has no record of receiving them despite being mailed to the URL given, I provided evidence that they were indeed sent on the 16th June.
I have requested they answer the questions which I think will be of interest to most here. I shall be as insistent as I need to be 😉, when they respond I shall share.

S