IQE warns on FY revenue as Huawei ban takes its toll

The AIM-listed semiconductor company now expects 2019 revenue to come in between £140m and £160m, versus consensus expectations of £175m.

"This is a larger impact than the previously guided risk related specifically to Huawei, due to the far-reaching impacts on other companies and supply chains that are now becoming evident," it said.

IQE said it is operating in "an increasingly cautious" marketplace and has very recently received a reduction in forecasts from a number of chip customers, in wireless and in photonics. This has dented its expected revenues for the second half of 2019.

Given the reduction in expected revenues, adjusted operating profit margin is expected to be significantly below the previous guidance of more than 10% but the company will remain profitable.

Chief executive officer Drew Nelson said: "These are unprecedented times for the global semiconductor industry as geo-political conditions affect interconnected global supply chains. It is now clear that the impact of Huawei’s addition to the US Bureau of Industry and Security’s Entity List is having far-reaching and long-lasting impacts on global supply chains.

"This is a matter outside of IQE’s control but we have responded swiftly to leverage our breadth of relationships and to pursue new sales opportunities. We are also taking prudent expenditure actions in order to manage through this period of uncertainty."

At 1030 BST, the shares were down 28% at 51.40p.

Canaccord Genuity slashed its price target on buy-rated IQE to 85p from 130p after the update.

The broker said its prior estimates expected a return to around 25% year-over-year revenue growth in the second half, driven by the strong ramp in photonics revenues and slowing declines in wireless. At the midpoint of management's new 2019 guidance range, second-half revenues would be broadly flat year-over-year, while implied growth would be 11% yoy at the high end, with a 10% decline at the low end, it said.

But Canaccord also pointed out that "the bad times rarely last forever".

"The demand recovery was building up nicely up until the Huawei ban caused additional demand uncertainty and disruption in the supply chain. We admit investors' patience and tolerance for earnings downgrades is tested yet again and at the demand lows it can be tempting to 'throw in the towel'. Yet we have seen a few semiconductor cycles before and believe the current weakness will not persist forever with a cyclical rebound only a question of time.

"Add in the pending arrival of 5G and increasing evidence of adoption of 3D sensing among Android OEMs, and we we have little doubt that IQE will eventually return to its structural circa 20% revenue and 50+% EPS trajectory."