Rising 3D-sensor demand sees Canaccord backing IQE

Canaccord analysts bumped up IQE's target price from 120p to 130p on Wednesday to reflect upbeat guidance from the company's downstream customers amid rising 3D-sensing attachment rates from Android OEMs.

Analysts suggested that these rising attachment rates, along with an iphone demand rebuild, improves visibility on the AIM traded company returning to year-on-year revenue growth exceeding 25% in the second half of the year, putting the smartphone semiconductor manufacturer back onto its roughly 20% revenue and roughly 40% earnings per share through-cycle growth trajectory.

Examples of the rising number of 3D-sensing products include Samsung phones which use the function for their QuickMeasure app, as well as Huawei’s Honor View20 phone, which can use its 3D sensor to turn the device into a motion-controlled gaming console.

While maintaining their 'buy' rating of the stock, Canaccord analysts added that several of IQE's main photonics and wireless customers have reported in-line or better results and guidance over the last 10 days, sounding confident about a demand recovery into the second half of the year.

Photonics customer AMS beat consensus estimates with its first quarter revenues and second quarter guidance as the company expects a strong second half, while Lumentum expects 3D sensing revenue to ramp up from summer and is seeing a reversal of excess VCSEL inventory.

Meanwhile, wireless customers Qorvo and Skyworks reported small beats and raises driven by content gains in smartphones and 5G infrastructure, while Win Semi has seen Asian smartphone demand increase since Chinese New Year.

"This is supported by our research which shows a rapid increase in smartphones with front- & rear/world-facing 3D sensors from several OEMs including Samsung, Huawei/Honor & Nokia. Assuming further launches into the second half, rising Android attach rates could drive potential upside to 2H19 Photonics estimates," said Canaccord analysts.

IQE's shares were down 2.27% at 85.95p at 1231 BST.