IQE continues double-digit annual revenue growth, at 16% in 2016

For full-year 2016, IQE has reported revenue of £132.7m, up 16% on 2015’s £114m, reflecting multiple growth drivers and currency benefits in second-half 2016.

Total wafer sales revenue was £126.1m, up 19% on £106m in 2015, reflecting strong organic growth in each of IQE’s primary markets: Wireless revenue rose 15% from £79.5m to £91.3m, Photonics revenue rose by as much as 43% from £16m to £22.8m, and InfraRed revenue rose by 19% from £8.9m to £10.6m. CMOS++ revenue fell slightly from £1.65m to £1.4m.

“Photonics continues to be the star of the show, with 43% year on year growth in sales and a CAGR [compound annual growth rate] of more than 35% over the past three years,” says president & CEO Dr Drew Nelson OBE. “This is being driven by VCSEL [vertical-cavity surface-emitting laser] and InP [indium phosphide] technologies, which enable a broad range of applications from fiber-optic communication to advanced sensors and industrial processes,” he adds. “The depth and breadth of photonics development programs and customer qualifications provide a solid platform for continued strong growth over the coming years.”

InfraRed had “a number of notable contract wins during 2016,” notes Nelson. “This division has gone from strength to strength, with good technological and commercial progress,” he adds.

“Good progress within the wireless division in 2016, including continued innovation, new product development and new qualifications, has strengthened IQE’s strong leadership position in this space and provides a good platform for further growth.

Growth in underlying demand was supplemented by a currency tailwind in second-half 2016, as the US dollar strengthened 11% against sterling, due primarily to the Brexit vote in June.

License revenue from sales to joint ventures was a better-than-expected £6.7m, but down on 2015’s £8m (although that included a significant element of upfront income).

Reflecting the impact of sales mix (particularly the drop in high-margin license income from 2015), adjusted gross margin fell from 28% to 27%. In contrast, adjusted gross margin on wafer sales rose from 23% to 24%, driven by increasing efficiencies.

Despite the reduction in high-margin license income, adjusted operating profit rose by 16.6% from £18.9m to £22.1m, reflecting the benefit of higher sales and operational efficiencies. Adjusted profit after tax rose by 19% from £18.1m (2.60p diluted earnings per share) in 2015 to £21.4m (3.00p diluted earnings per share) in 2016. IQE’s board is not recommending the payment of a dividend.

Cash inflow from operations rose from £21m to £22.5m, representing a 102% conversion of adjusted operating profit into cash.

Capital investment has been increased from £10m in 2015 to £19.1m in order to address near-term growth opportunities, principally in photonics, gallium nitride (GaN) and cREO (rare earth oxide).

“The continuing growth in revenues, profits and cash generation is being enabled by the group’s portfolio of cutting-edge intellectual property, and is being delivered through a diverse range of growth engines,” says Nelson.

IQE says that it is now engaged directly with multiple tier-1 OEMs (bypassing the normal ‘materials – chip – OEM’ model), reflecting the firm’s strong IP position and the increasing importance of epitaxial IP as a key enabling technology within electronic systems. Enabled by its growing IP portfolio, IQE says that major milestones achieved in 2016 provide a positive lead indicator of significant growth opportunities ahead:

“Our focus on building a strong IP portfolio reflects our vision of global leadership across a range of markets as advanced semiconductor materials become an increasingly important enabler of a wide range of electronics applications,” says Nelson. “This strategy underpins our strong financial performance.”

In particular, good progress by IQE’s joint ventures in the UK and Singapore mark key milestones in their development as centres of excellence in driving innovation and commercialization of advanced compound semiconductor technologies, adds the firm. The UK JV was a catalyst to securing about £300m of funding towards the continued development of a UK Compound Semiconductor Cluster, and the Singapore JV has been selected as a partner in a major program for compound semiconductor on silicon technology.

Positive market dynamics, including increasing mergers & acquisitions (M&A) and sector investment, reflect the increasing focus on compound semiconductors as a critical enabling technology to major growth themes, including high-speed communication, the ‘Internet of Things’, big data, advanced medical technology, energy efficiency, and autonomous vehicles, says IQE.

“The current financial year has started well and trading is in line with expectations,” notes Nelson. “The outlook for the full year remains very positive, with good upside potential. The board remains confident that the group is on track to achieve expectations for the full year, and anticipates that the group will continue to benefit from strong cash flows.”