November 24, 2021 02:00 ET | Source: IQE plc IQE plc

IQE plc (AIM: IQE, "IQE" or "Group"), a leading supplier of compound semiconductor wafer products and advanced material solutions for the global semiconductor industry, announced a transaction update for the year ending December 31, 2021.

Driven by the smartphone market’s 5G penetration rate and WiFi 6, the demand for wireless GaAs epitaxial wafers will continue to grow in the second half of 2021. Despite the year-on-year growth, in the context of weakness, GaAs sales in the fourth quarter were lower than management's expectations for demand in the broader smartphone supply chain.

Although facing the challenges of supply chain constraints in the broader semiconductor industry, GaAs's robust performance throughout 2021 has led to the high utilization rate of the group's Taiwan factory, where the group is investing in eight new tools and refurbished tools. This includes three new Aixtron G4 reactors, which are now in service to support further growth in 2022.

Due to the dynamics of the terminal market, including the significant reduction in the deployment level of mMIMO base stations in Asia and the slow deployment in Western markets, sales of wireless GaN epitaxial wafers continued to be weak. GaN is still an important material for 5G infrastructure, and demand is expected to recover within the multi-year deployment cycle.

Throughout the second half of 2021, the demand for VCSELs used in 3D sensing applications has remained stable, but with the supply chain seasonality and the general weakness of the smartphone supply chain, it is expected to gradually decrease by the end of the year.

Due to the re-stage of certain defense and security orders related to large-scale projects to 2022 and the slowdown in sales of new DFB products, sales of other Photonics products in the fourth quarter were also lower than management expectations.

The R&D program continues to make significant progress, achieving important milestones in the commercialization of long-wavelength VCSELs, advanced medical sensing, porous silicon for front-end module switches, and silicon-based GaN technology for the infrastructure market.

With the closure of the Group's Pennsylvania plant and the related integration of MBE production capacity in North Carolina, operations are progressing very strongly, and it is planned to be completed in 2024.

The recently announced closure of the Singapore factory is also proceeding as planned and is expected to be completed in mid-2022. These closures are part of the group's integration strategy and will increase production efficiency and profit margins in the medium and long term.

According to reports, there will be a major foreign exchange headwind in 2021. This is due to the relative strength of the British pound against the U.S. dollar, and most of IQE's income is denominated in U.S. dollars.

Due to weak demand in the fourth quarter, IQE now expects full-year reported revenue to be around £152 million. At a constant exchange rate, this is equivalent to approximately 164 million pounds, which means a year-on-year decrease in revenue of approximately 8%.

The adjusted EBITDA in the final report is expected to be around 18 million pounds. This is equivalent to approximately 25 million pounds at a fixed exchange rate. At a fixed exchange rate, the EBITDA margin is approximately 15% (17% in fiscal year 2020).

As the payment for certain tool purchases is phased to 2022, this year's cash capital expenditure is expected to be between 14 million pounds and 17 million pounds, compared with the previous guidance of 20 million pounds to 30 million pounds. It is expected that net debt will be reduced by more than 10 million pounds.

Phil Smith, Interim Executive Chairman of IQE, commented:

"Although it is disappointing that 5G infrastructure deployment remains weak throughout the year, we still expect this macro trend to provide IQE with a multi-year growth cycle. In the near term, the broader semiconductor market shortage has weakened some supply chains. But we believe that these effects are temporary, and we are still excited about future opportunities.

At the same time, IQE has made significant strategic and operational progress in 2021. This lays a solid foundation, and the newly announced CEO Americo Lemos will take advantage of this when formulating a strategy for the future direction of the business next year. "

IQE plc +44 (0) 29 2083 9400 Phil Smith Tim Pullen Amy Barlow Peel Hunt LLP (nomad and joint broker) +44 (0) 20 7418 8900 Edward Knight Paul Gillam James Smith Citigroup Global Markets Ltd (joint broker) ) +44 (0) 20 7986 4000 Christopher Wren Peter Catrol        

Headland Consultancy (Financial Public Relations) + 44 (0) 20 38054822 Andy Rivett-Carnac: +44 (0) 7968 997 365 Chloe Francklin: +44 (0)78 3497 4624

This announcement contains inside information regarding Article 7 of the UK Market Abuse Regulations (Regulation (EU) No 596/2014). The person responsible for arranging and authorizing the release of this announcement is Chief Financial Officer Tim Pullen.

IQE is the world's leading supplier of advanced compound semiconductor wafers and material solutions, enabling various applications in the following areas:

As a large-scale global epitaxial wafer manufacturer, IQE is unique in this market with high barriers to entry. IQE supplies the entire market and is unaware of the winners and losers at the chip and OEM level. By using the group's intellectual property portfolio, including proprietary technology and patents, it produces epitaxial wafers with excellent quality, yield, and unit economy.

IQE is headquartered in Cardiff, UK, has c. It has 670 employees in nine manufacturing bases in the UK, the US, Taiwan and Singapore, and is listed on the AIM Stock Exchange in London.