British chipmaker IQE swung to a profit in the first half of the year as demand for its semiconductor wafers continued to recover.
The Cardiff-based group, which makes epi-wafers for use in laser hair removal and facial recognition sensors in iPhones, posted a core profit of £6.6million for the six months to 30 June after suffering a £5.7million loss during the same period last year.
Profitability was driven by revenue growth of 27 per cent, demonstrating recovery after two years hampered by post-Covid supply chain restraints and a sharp slowdown in demand.
But IQE shares fell more than 10 per cent by mid-morning as the group warned it expects ‘more moderate growth’ in the second half, as the ongoing recovery in demand proves uneven.
IQE expects ‘pockets’ of recovery in the second half
The group said: ‘Signs of recovery in the global semiconductor industry continue, despite the pace of progress varying between regions and market segments.
‘IQE will maintain a tight focus on structural cost controls, footprint optimisation and operational efficiencies.
‘This will allow the business to continue to improve its profitability while building its market-led technology roadmap in partnership with key customers.’
IQE said it now expects full-year to be ‘at the lower end’ of analyst forecasts, which currently predict revenues of £130million to £154million, and adjusted earnings before nasties of £11million to £17million for 2024.
The Apple supplier’s boss Americo Lemos added: ‘We expect the market to continue to show pockets of recovery during the second half, resulting in more moderate growth for 2024 on a full-year basis.’
However, IQE expects to receive a boost from plans to list its Taiwan operating subsidiary on the Taiwan Stock Exchange.
IQE plans to sell a minority stake in IQE Taiwan, thereby maintaining control of the business after IPO, and use the proceeds to fund its growth strategy.
Lemos said: ‘We look forward to progressing the planned IPO of our Taiwanese subsidiary, which will help to accelerate our diversification strategy into the GaN Power market and microLED, and will provide additional significant cash resources for the Company.’
IQE shares were down 13.9 per cent to 20.4p in early trading, parring back gains over the last 12 months to around 23 per cent.
Analysts at Peel Hunt declined to make changes to their IQE forecast, maintaining a 61p target prie ‘despite near-term market volatility’.
They said: ‘We remain long-term buyers.
‘Any recovery should see improved cash generation. The last ‘boom’ in FY16-20 saw 13 per cent of revenues convert to operating cash flow, while the ‘bust’ from FY21-23 saw just 6 per cent.
‘We think this could improve back to double digits from FY25E onwards.’
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