IQE plc (IQE.L) | Investment Case

1. Company Snapshot

1.a. Company Description

IQE plc develops, manufactures, and sells advanced semiconductor materials.The company operates in three segments: Wireless, Photonics, and CMOS++.It manufactures compound semiconductor wafers or epiwafers using epitaxy process; offers wireless products, including GaAs, GaN, and InP-based technologies, as well as Si and Ge-based epitaxial wafer structures; and supplies GaAs HBTs, pHEMTs, and BiFETs/BiHEMTs for use in consumer mobile handsets, connected devices, 5G network infrastructure, WiFi 6, Bluetooth, and satellite communications.

The company also provides photonics products, which include vertical cavity surface emitting lasers, a 3D sensing technology that enables facial recognition, gesture control, light detection and ranging (LiDAR), and other advanced sensing applications; indium phosphide (InP) laser and detector wafers that powers high speed, 5G telecommunication, and data communication fiber optic networks; Gallium Nitride (GaN) and gallium arsenide (GaSb) for multicolor uLED displays; and a range of gallium antimonide (GaSb) and InP materials that enables high definition infrared imaging and sensing in security, health monitoring, and environmental applications.In addition, it offers substrate products, such as GaSb, InP, InAs, InSb, GaSb, CZT, custom size or geometry wafers, polycrystalline materials, high purity group iii/v source materials, and bespoke orientation substrates.Further, the company provides nanoimprint lithography services.

The company serves in the United States, rest of the Americas, France, Germany, Israel, the United Kingdom, rest of Europe, the Middle East, Africa, the People's Republic of China, Japan, Taiwan, and rest of the Asia-Pacific.IQE plc was founded in 1988 and is headquartered in Cardiff, the United Kingdom.

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1.b. Last Insights on IQE

IQE plc's recent performance has been hindered by a decline in global demand, exacerbated by weak trade data from China. The company's exposure to the semiconductor industry, which has been impacted by supply chain disruptions and economic uncertainty, has contributed to its struggles. Furthermore, IQE's reliance on a limited number of customers has increased its vulnerability to fluctuations in demand. The company's recent earnings release highlighted a decline in revenue and profitability, underscoring the challenges it faces in the current market environment.

1.c. Company Highlights

Last Price	5.02
Change Percentage	-1.18%
Open	5.19
Previous Close	5.08
Market Cap ( Millions)	49
Volume	977828
Year High	18.54
Year Low	4.66
M A 50	5.89
M A 200	8.98

FCF Yield	-10.36%
Dividend Yield	0.00%
ROE	-40.92%
Debt / Equity	81.86%
Net Debt / EBIDTA	-566.43%
Price To Book	0.46
Price Earnings Ratio	-0.99
Price To FCF	-9.66
Price To sales	0.5
EV / EBITDA	-9.64

2. IQE Delivers Mixed Results Amid Strategic Overhaul

IQE reported its FY 2024 results, showcasing a mixed performance amidst a challenging macroeconomic backdrop. The company generated £118 million in revenue, marking a modest year-over-year increase. Adjusted EBITDA surged 90% to £8.2 million, while adjusted LBIT improved slightly to £18.3 million. However, the earnings per share (EPS) came in at -0.01567, underperforming analyst estimates of -0.0101, reflecting ongoing profitability challenges. Despite these headwinds, the company highlighted progress in strategic diversification and cost-cutting measures.

Publication Date: May -13

                                    📋 Highlights
                                    Strategic Review and Debt-Free Goal:
                                                IQE is considering the sale or IPO of its Taiwan operations to become debt-free.
Financial Performance:
                                                Revenue reached £118 million, with a 90% increase in adjusted EBITDA to £8.2 million.
Wireless Segment Growth:
                                                The Wireless segment grew 25% to £67.3 million, driven by GaN sales for 5G infrastructure.
Photonics Revenue Decline:
                                                Photonics revenue fell 16% to £49.9 million due to softness in 3D sensing.
GaN and MicroLED Investments:
                                                Strategic diversification into GaN power and MicroLED, supported by a joint development agreement with X-FAB.

                                

Segment Performance and Strategic Diversification

The Wireless segment emerged as a bright spot, growing 25% to £67.3 million, driven by robust demand for GaN products in 5G infrastructure. Conversely, the Photonics division saw a 16% revenue decline to £49.9 million, attributed to softness in the 3D sensing market. Management emphasized its strategic shift toward GaN power and MicroLED technologies, supported by a joint development agreement with X-FAB. These initiatives aim to position IQE for long-term growth in emerging markets such as AI infrastructure and AR/VR applications.

Cost Efficiency and Financial Position

IQE implemented significant cost-cutting measures, reducing headcount costs by 10% and improving operational efficiency. The company is exploring the sale or IPO of its Taiwan operations to eliminate debt and bolster its financial position. This strategic review aligns with management's goal to focus on high-growth areas like AI and GaN, where IQE is leveraging its expertise in indium phosphide to gain a competitive edge. As noted by CEO Jutta Meier, "Strengthening customer relationships through trust and partnership is critical to our success in these evolving markets."

Valuation and Outlook

From a valuation standpoint, IQE currently trades at a price-to-sales (P/S) ratio of 0.75, reflecting its challenging profitability profile. However, the enterprise value-to-EBITDA (EV/EBITDA) ratio of 109.48 underscores the market's expectation of future growth. Looking ahead, analysts project a 4.1% revenue growth for 2025, supported by a strong pipeline of customer engagements. While delays in the GaN market have impacted near-term targets, IQE remains committed to its strategic priorities, including GaN expansion and investments in AI-related technologies.

3. NewsRoom

Form 8.3 - NCC Group PLC

Oct -23

Source:

Form 8.3 - NCC Group PLC

Oct -17

Source:

Form 8.3 - IQE PLC

Sep -18

Source:

Form 8.3 - IQE PLC

Sep -17

Source:

Form 8.3 - IQE PLC

Sep -16

Source:

Form 8.3 - IQE PLC

Sep -15

Source:

Form 8.3 - IQE Plc

Sep -12

Source:

Form 8.3 - IQE Plc

Sep -11

Source:

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (10.40%)

6. Segments

Photonics

Expected Growth: 10.47%

IQE plc's Photonics segment growth of 10.47% is driven by increasing demand for 3D sensing and facial recognition technology in smartphones, adoption of photonics in datacenter interconnects, and growing use of VCSELs in automotive lidar applications, as well as the company's strong relationships with leading OEMs and technology companies.

Wireless

Expected Growth: 10.38%

IQE plc's Wireless segment growth of 10.38% is driven by increasing demand for 5G infrastructure, adoption of IoT devices, and rising need for high-speed data connectivity. Additionally, advancements in semiconductor technology, growing popularity of wireless charging, and expansion into new markets also contribute to this growth.

CMOS

Expected Growth: 8.9%

IQE's CMOS segment growth of 8.9% is driven by increasing demand for 5G infrastructure, proliferation of AI-enabled devices, and growing adoption of IoT devices. Additionally, the rising need for high-speed data transmission and low-power consumption in smartphones and laptops is fueling growth. Furthermore, IQE's strategic partnerships and investments in R&D are enhancing its competitive position and driving revenue growth.

7. Detailed Products

Wafer Products

IQE plc provides a range of wafer products, including GaAs, InP, and GaN, used in the production of semiconductor devices such as lasers, LEDs, and transistors.

CPV Cells

IQE plc offers Concentrated Photovoltaic (CPV) cells, which convert sunlight into electricity with high efficiency.

Infrared Detectors

IQE plc provides infrared detectors, which convert infrared radiation into an electrical signal, used in applications such as thermal imaging and night vision.

RF Devices

IQE plc offers RF devices, including switches, filters, and amplifiers, used in wireless communication systems.

Optical Components

IQE plc provides optical components, including lenses, prisms, and beam splitters, used in applications such as spectroscopy and microscopy.

LEDs and Laser Diodes

IQE plc offers LEDs and laser diodes, used in applications such as lighting, displays, and optical communication systems.

8. IQE plc's Porter Forces

Forces Ranking

Threat Of Substitutes

IQE plc's products are specialized and customized, making it difficult for substitutes to emerge. However, the company's reliance on a few key customers increases the threat of substitutes.

Bargaining Power Of Customers

IQE plc's customers are large and have significant bargaining power due to their size and purchasing power. This gives them the ability to negotiate prices and terms.

Bargaining Power Of Suppliers

IQE plc has a diverse supplier base, which reduces the bargaining power of individual suppliers. The company's strong relationships with suppliers also help to mitigate this risk.

Threat Of New Entrants

The barriers to entry in the semiconductor industry are high, making it difficult for new entrants to compete with IQE plc. The company's established relationships and specialized products also make it challenging for new entrants to gain traction.

Intensity Of Rivalry

The semiconductor industry is highly competitive, but IQE plc's specialized products and strong relationships with customers help to mitigate the intensity of rivalry.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	7.47%
Debt Cost	5.49%
Equity Weight	92.53%
Equity Cost	12.99%
WACC	12.43%
Leverage	8.07%

11. Quality Control: IQE plc passed 1 out of 9 key points

Strong Liquidity

Low Debt

Strong Interest Coverage

Healthy Cash Flow

Operating Inefficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Navitas Semi

A-Score: 4.3/10

Value: 6.2

Growth: 6.4

Quality: 3.8

Yield: 0.0

Momentum: 9.5

Volatility: 0.0

1-Year Total Return ->

Seco

A-Score: 3.9/10

Value: 4.3

Growth: 4.9

Quality: 2.8

Yield: 0.0

Momentum: 9.5

Volatility: 2.0

1-Year Total Return ->

Alphawave IP

A-Score: 3.6/10

Value: 4.6

Growth: 5.1

Quality: 1.6

Yield: 0.0

Momentum: 9.5

Volatility: 1.0

1-Year Total Return ->

SEALSQ

A-Score: 3.5/10

Value: 6.2

Growth: 1.3

Quality: 3.4

Yield: 0.0

Momentum: 10.0

Volatility: 0.0

1-Year Total Return ->

Magnachip Semiconductor

A-Score: 2.7/10

Value: 9.8

Growth: 1.2

Quality: 2.9

Yield: 0.0

Momentum: 1.0

Volatility: 1.0

1-Year Total Return ->

IQE

A-Score: 2.3/10

Value: 9.6

Growth: 1.2

Quality: 1.7

Yield: 0.0

Momentum: 0.5

Volatility: 0.7

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

25.92%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

12.43%

IQE plc - GB0009619924

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on IQE

1.c. Company Highlights

Lower Quality

Lower Growth

More Volatile

Strong Momentum

Cheaper

Revenues Beats

Earnings Miss

Weak Momentum

Revenues Miss

2. IQE Delivers Mixed Results Amid Strategic Overhaul

Segment Performance and Strategic Diversification

Cost Efficiency and Financial Position

Valuation and Outlook

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (10.40%)

6. Segments

Photonics

Expected Growth: 10.47%

Wireless

Expected Growth: 10.38%

CMOS

Expected Growth: 8.9%

7. Detailed Products

Wafer Products

CPV Cells

Infrared Detectors

RF Devices

Optical Components

LEDs and Laser Diodes

8. IQE plc's Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: IQE plc passed 1 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

0.05$

Current Price

0.05$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA