Trading update

IQE plc

Cardiff, UK. 21^st June 2019: IQE plc (AIM: IQE; "IQE", the “Company” or the "Group"), the leading global supplier of advanced wafer products and materials solutions to the semiconductor industry, provides the following trading update ahead of the financial close for H1 FY2019.

IQE expects to deliver revenue of £65m to £68m for the first half of FY2019 (consensus £68m). As previously guided, the first half of 2019 has been impacted by a weak smartphone handset market, particularly affecting the Wireless Business Unit. In addition, IQE has also experienced a reduction in Indium Phosphide laser revenues for the datacom market due to a customer specific issue outside of IQE’s control. This has been partially offset by new qualifications and revenue streams coming into production at our Taiwan facility where we have invested in capacity and which offer increased customer diversification.

IQE announced on 2^nd May 2019 that it’s recently constructed Newport Mega Foundry received its first mass production order from its leading existing VCSEL customer. This has had a beneficial impact on Photonics revenues for May and June in line with previous guidance.

On 24^th May 2019 IQE announced, as a response to external geo-political uncertainties, that the Group may experience some delay to orders and the potential for adjustment of supplier managed inventory levels, predominantly in its Wireless Business Unit.

IQE is operating in an increasingly cautious marketplace and has very recently received a reduction in forecasts from a number of chip customers, in Wireless and also in Photonics, impacting anticipated revenues for the second half of FY2019.

As a result of the above and with the expectation that uncertain market conditions will continue in the short-term, IQE now expects to deliver revenues in the range of £140m to £160m for FY2019 at prevailing exchange rates (consensus £175m).

This is a larger impact than the previously guided risk related specifically to Huawei, due to the far-reaching impacts on other companies and supply chains that are now becoming evident.

Photonics

The Group issues revised constant currency (USD) guidance for the Photonics segment which it now expects to grow by less than 30% year on year (previous guidance of over 50%)

Strong progress continues to be made at our Newport Mega Foundry for VCSEL production. Four reactors are currently in mass production with the first major customer. Two further customers are expected to enter mass production in H2. Sampling continues with an additional 13 customers as part of ongoing qualifications which provide breadth of exposure to global supply chains. The company remains confident that it will continue to show strong revenue growth in the Photonics business through customer diversification in 2020 and beyond.

Whilst the outlook for Indium Phosphide lasers remains challenging in the short term, IQE is engaging with several new customers who are forecasting growth, as global supply chains adapt to current conditions. IQE is in the final stages of qualification for a significant opportunity for full service 10G Distributed Feedback (DFB) laser production, with revenues anticipated  in Q4 FY2019. In addition, major progress has been made in developing next generation 25G full service DFBs for high speed datacoms, hyperscale datacentres and 5G.

Wireless

IQE issues revised constant currency (USD) guidance for the Wireless segment which it expects to decline by 20% to 25% year on year (previous guidance of a decline of 15%).

The Group is witnessing significant global supply chain shifts that are affecting short-term revenues from Power Amplifier products, but is engaged in initial production activities with two key Asian customers who stand to benefit from significant additional volumes in the medium-term, with the anticipation of H2 2019 revenues from these customers.

In H1 2019, continued strong progress has been made in the research and development of the unique 5G RF Filter Materials Portfolio based on our patented cREO technology and we remain actively engaged with several chip customers to bring this product to market.

Infra Red

Constant currency (USD) guidance for the Infra Red segment remains unchanged at 15% year on year growth. This segment continues to perform strongly and provides a source of stability and customer diversification to IQE’s portfolio.

Adjusted Operating Profit

Given the reduction in expected revenues, IQE expects to remain profitable in 2019 but with Adjusted Operating Profit margin significantly below the previous guidance of over 10%.

Whilst the company’s cost base is largely fixed in the short-term, IQE is taking steps to reduce costs and avoid non-critical capital expenditure. This includes the acceleration of the assessment of strategic projects to optimise the company’s global manufacturing footprint. Active management of all cashflows will ensure the company remains within the limits of its current revolving credit facility in 2019.

Outlook for 2020

IQE remains cautiously optimistic about growth opportunities for 2020 and as global supply chains adjust we expect that the significant market drivers such as 5G, connected devices and LIDAR will regain momentum. IQE remains in a very strong position to capitalise on this with its unique breadth and depth of products, global production capacity and intellectual property. The steps being taken by the Group to adapt and manage through this period of uncertainty will ensure it is well placed to grow revenues and expand margins in the eventual rebound cycle.

Dr Drew Nelson, Chief Executive of IQE, said:

"These are unprecedented times for the global semiconductor industry as geo-political conditions affect interconnected global supply chains. It is now clear that the impact of Huawei’s addition to the US Bureau of Industry and Security’s Entity List is having far-reaching and long-lasting impacts on global supply chains. This is a matter outside of IQE’s control but we have responded swiftly to leverage our breadth of relationships and to pursue new sales opportunities. We are also taking prudent expenditure actions in order to manage through this period of uncertainty. IQE remains well placed to adapt to mid - long-term share shifts at both the component (chip) and the OEM level. Indeed, we are now seeing increasing activity from customers in alternative supply chains across our business units as these supply chains respond to current market dynamics. We anticipate significant new customer qualifications during the second half of 2019 as a result. As global markets adjust and recover, we remain extremely well placed for significant future growth."

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

CONTACTS:

IQE plc Tim Pullen Drew Nelson Chris Meadows	[phone]
Canaccord Genuity (Nomad and Joint Broker)  Simon Bridges Adam James	+ 44 (0) 20 7523 8000
Peel Hunt (Joint Broker) Edward Knight Nick Prowting	[phone]

ABOUT IQE

http://iqep.com


IQE is the leading global supplier of advanced semiconductor wafers that enable a diverse range of applications, supported by an innovative outsourced foundry services portfolio that allows the Group to provide a 'one stop shop' for the wafer needs of the world's leading semiconductor manufacturers.


IQE uses advanced crystal growth technology (epitaxy) to manufacture and supply bespoke semiconductor wafers 'epi-wafers' to the major chip manufacturing companies, who then use these wafers to make the chips which form the key components of virtually all high technology systems. IQE is unique in being able to supply wafers using all of the leading crystal growth technology platforms.


IQE's products are found in many leading-edge consumer, communication, computing and industrial applications, including a complete range of wafer products for the wireless industry, such as smartphones and wireless infrastructure, Wi-Fi, base stations, and satellite communications; optical communications, optical storage, printing, thermal imagers, leading-edge medical technologies, automotive and aerospace technologies, a variety of advanced silicon based systems and high efficiency concentrator photovoltaic (CPV) solar cells.


IQE is headquartered in Cardiff UK and operates multiple manufacturing and R&D facilities worldwide.