IQE reins in expectations as major industry customer cuts shipments

IQE reported on Tuesday that its supply chain has been affected by a reduction in shipments from a major semiconductor customer, leading to a drop in full-year revenue expectations.

The AIM-traded wafer supplier to the semiconductor industry, which has supplied components for Apple's iPhone X, said in a statement that it now expects to achieve full year revenues of approximately £160m, up from last year’s £154.6m but down on previous expectations. Adjusted EBITDA is likely to come out at around £31m.

Drew Nelson, chief executive of IQE, said a VCSEL inventory overbuild from the end of last year likely satisfied product builds occurring as late as September and October 2018, resulting in a steep ramp for VCSEL production in the fourth quarter with a slowdown in shipments that would “materially impact our expected year end revenues and profitability”.

As such, Photonics wafer revenue growth for the full year is now expected to be 11%, down from prior estimates of 35-50%, returning to guided levels of between 40% and 60% in 2019.

“Our Photonics business is building a wide customer base across multiple chip manufacturers providing VCSELs for a number of different end market applications including 3D sensing and this increasing customer diversification will in time produce a better-balanced and more uniformly distributed demand profile,” said Nelson.

Nelson added that he was also “delighted” by the performance of the wireless and infrared business units, which are both on track to achieve or outperform full-year revenue expectations.

IQE’s shares were up 5.34% at 70.57p at 0924 GMT.

Broker Peel Hunt said the deep cut is a reflection of a very steep year end ramp expected in the prior guidance given the use of inventory overbuild last year even into October.

Reading across to Monday's downgrade from Lumentum, a manufacturer of laser light sources for 3D sensing VCSELs, Peel Hunt added: "One thing Lumentum was keen to reiterate was the absence of market-share shifts. This is comforting."

To the analysts such inventory dislocations "are typical at this juncture of the market evolution" and they "remain convinced we are still at the foothills of the opportunity, and given the share price reaction yesterday, remains positive on IQE’s medium to longer-term value upside".