Compound semiconductor technology firm IQE (IQE:AIM) said it expected to return to profit in the second half of the year, despite a decline in demand from a worldwide slump in smartphone sales.
For first half to 30 June 2020, revenue was expected to be ‘at least’ £85m, up more than 27% on a year ago. This will mean a return to profit, albeit modest, with IQE guiding for a low single digit adjusted operating profit. Consensus was for around £2m of adjusted operating losses.
BETTER THAN EXPECTED
‘The first quarter was slightly above internal expectations,’ said analysts at Stifel, while trading in the April to June period when the worst of the pandemic hit home has ‘so far been strong in both Wireless and Photonics.’
Shares in the Cardiff-based business jumped 29% to 51p, their highest since February, valuing IQE at £395m.
But IQE admits that it faces falling demand from smartphone manufacturers, where sales volumes have sunk during the Covid-19 lockdown. IQE anticipates the possibility of some level of inventory adjustment in the second half.
Encouragingly, there are several emerging opportunities, such as in 3D Sensing and Wireless Power Amplifiers for 5G handsets, where the amount of compound semiconductor content per handset was increasing, the company said.
NEAR-TERM QUESTIONS
But there remain substantial unknowns at present, limiting the company’s ability to provide more detailed guidance for the months ahead.
‘It is possible that current levels of demand will continue but equally possible that revenues could fall in the second half as the full public health and economic effects of the coronavirus pandemic become clearer,’ the company admits.
‘We still don’t have a clear OK signal for the industry,’ said Peel Hunt’s James lockyer.
Broadcom recently flagged potential product cycle delays in major wireless original equipment manufacturers and, if that proves widespread, it could it could scupper the pace of recovery for IQE.
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