Cardiff-based compound semiconductor wafer designer IQE (IQE:AIM) deserves credit for the speed at which it has reacted to disappointing news.
Late yesterday afternoon news emerged from laser sensor maker Lumentum that a major customer had slashed orders. Lumentum is a major supplier of VCSEL chips to Apple, or vertical-cavity surface-emitting lasers, used for facial recognition features on smartphones.
While unconfirmed, many investors believe the Cupertino giant is that major customer.
Lumentum’s shares dropped more than 30%. So why does this matter to IQE and its shareholders? Because it in turn supplies Lumentum with the compound wafers on which VCSEL tech is embedded. That perhaps explains why IQE’s share price slumped by 30% last night.
A HAMMER BLOW
The UK company hurried out a statement at 4.20pm on Monday but it really wasn’t able to say much more than the fact it was looking into how it may be impacted.
IQE has now put out another update which is far more informative for investors. It contains a thorough explanation of the state of play for IQE, but equally important, what the impact will be to this year’s revenue and profit.
Revenue for 2018 is now expected to be around £160m versus £154.6m in 2017. Around £176m to £178m had been forecast. At the profit level, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) ‘is now expected to be approximately £31m’.
The equivalent in 2017 was £37.1m, while this year about £44m had been anticipated before this week’s setback.
SPLIT OPINION
Investors tend to be split by IQE. Many investors simply don’t understand the business, and it does take a fair bit of effort to get a handle on what it does if you don’t happen to have a PhD in the natural sciences.
Fans think the company sits at the very root of a technological shift that has enormous value creation potential, particularly as tech (and microchips) become increasingly embedded in to everything.
Sceptics argue that IQE is a very expensive minor player in a complex supply chain with limited control over pricing given the scale of many of its clients. Apple is widely believed to be among them, a giant of industry well-known for squeezing its supply partners.
IQE remains one of the UK’s most shorted stocks, where investors are betting on the shares falling in value over time.
But credit to IQE for reacting so rapidly to industry events and giving shareholders a clear steer on their impact. Not all companies would have done as well.
