For 2012, epiwafer foundry and substrate maker IQE plc of Cardiff, Wales, UK has reported record full-year revenue of £88m, consisting of £69m (79%) from Wireless, £18m (20%) from Photonics, and £0.95m (1%) from Electronics. This is up 17% on 2011's £75.3m, which consisted of £55.2m (73%) from Wireless, £18.6m (25%) from Photonics, and £1.6m (2%) from Electronics.
However, sales and profits were much more heavily skewed to the second half than normal, reflecting the impact of destocking in first-quarter 2012 related to market share swings at two major wireless customers (leading to poor sales) and a £20m boost since June from the acquisition of RF Micro Device's epiwafer manufacturing unit. Second-half revenue was £53.7m, up 56% on £34.3m in the first half and up 45% on £37m in H2/2011. EBITDA (earnings before interest, taxes, depreciation, amortization, share-based payments and exceptional items) was £12.2m, up 56% year-on-year on H2/2011's £7.8m, and comprising most of the record full-year EBITDA of £16.4m (up 18% on 2011's £14m).
For full-year 2012, gross profit rose from £18.2m to £18.5m and contribution margins have remained stable. However, the benefit of the sales growth has been partly offset by higher depreciation and the overhead associated with the facility acquired from RFMD. Nevertheless, adjusted operating profit rose from £7.4m to £7.6m (excluding one-off transaction costs of £0.6m), of which £7.2m came in H2/2012.
Capital expenditure (CapEx) was £13.1m (down from 2011's £17.4m), marking the completion of a two-year capacity expansion program (CapEx should now return to maintenance levels).
Assuming cash settlement of acquisition, pro-forma cash generated from operating activities was £13.2m, up 27% from £10.3m for 2011 (though down 54% to £4.8m on a statutory basis, after deducting £8.4m used in investing activities).
Over the last 14 months, IQE completed three strategic transactions. In February 2012, IQE invested in a 9% stake in concentrated photovoltaic (CPV) cell manufacturer Solar Junction Corp (as well as announcing an exclusive wafer supply agreement), accelerating IQE's strategy to become a global supplier of CPV wafers for the solar power markets.
In June, IQE acquired the in-house MBE epiwafer manufacturing unit of RF Micro Devices Inc of Greensboro, NC, USA, involving a seven-year supply agreement for the provision of all of RFMD's MBE wafers and most of its MOCVD wafer requirements (under a discounted pricing arrangement, but with a minimum purchase commitment of $55m over the first two years).
This January, IQE acquired the Kopin Wireless MOCVD-based heterojunction bipolar transistor (HBT) epiwafer manufacturing business of Kopin Corp of Taunton, MA, USA - plus its 90.2% controlling interest in subsidiary Kopin Taiwan Corp (KTC) in Hsinchu - for $75m (with $15m payable in January 2016). The transaction extends IQE's global manufacturing footprint, providing access to growing Asian semiconductor markets. It also increases IQE's wireless market share, including adding Skyworks as a major customer (via a contract that continues until the end of 2013), acting as part of IQE's risk mitigation strategy. The expanded global footprint and the increase in the scale of IQE's wireless business is expected to yield cost synergies from 2014 onwards of at least £7m per annum.
IQE says that the three strategic transactions provide a platform for continued strong growth, reduce market risk and short-term volatility through the diversification of markets and customers, strengthen IQE's position in compound semiconductor manufacturing and supply, and provide further economies of scale and opportunities for cost savings.
The strategic value of the RFMD acquisition was demonstrated in fourth-quarter 2012, says IQE. "It protected the group from further swings in market share between chip companies. In particular, higher-than-anticipated volumes with RFMD mitigated the impact of a destocking elsewhere, which was similar to that experienced a year earlier," the firm adds. "The acquisition of Kopin Wireless at the beginning of the current financial year has brought with it a significant share of business with Skyworks Solutions, which has filled the gap in the risk mitigation strategy."
IQE says that it is beginning to see the rewards of its investment program in advanced wireless technology over the last two years. Progress on qualification programs includes entering production with five chip companies on advanced BiHEMT products. IQE reckons that it now has a 50-60% share of the wireless epiwafer market.
Also, several photonics (optoelectronics) R&D programs are transitioning into volume production. In particular, IQE has started to ship vertical-cavity surface-emitting laser (VCSEL) materials for optical communications applications (including multiple customers for data-center applications).
In addition, concentrated photovoltaic (CPV) solar milestones for 2012 (set out at the time of the Solar Junction investment last February) were achieved on schedule (with two dedicated tools installed and commissioned, and process transfer technology completed in Q4/2012) and end-customer qualifications are on track to allow transition into volume production in H2/2013.
"IQE has been transformed over the last 14 months," comments chief executive Dr Drew Nelson. "Three major transactions, the completion of our capacity expansion program and the achievement of a number of significant qualifications in both wireless and photonics (optoelectronics) have laid the foundations for accelerated growth in 2013 and beyond," he adds.
"Our record second-half performance in 2012 has provided a glimpse of what's to come," Nelson believes. "Furthermore, the strengthening of our risk mitigation strategy reduces the potential for short-term customer demand volatility," he continues.
"The advanced properties of compound semiconductors are central to addressing the challenges and performance expectations facing the electronics industry," notes Nelson. "This is a matter of fundamental physics as the next wave of growth for the electronics industry will be enabled by combining the properties of advanced compound semiconductors with the cost advantages of silicon. This is already beginning to happen and will accelerate in the next few years," he adds.
"We are increasingly confident that the group is well positioned for strong growth in 2013 and beyond. Therefore our focus now is on delivery... The momentum seen in the second half of 2012 is continuing."
