Analysts have taken a sharp knife to forecasts for compound wafer maker IQE (IQE:AIM) after it slashed revenue and earnings guidance. The chip components supplier projected a 40% fall in annual core profit on Wednesday as the Cardiff-based firm’s smartphone-making clients place fewer orders due to supply chain issues.

The warning from IQE, which makes semiconductor wafers for chips used in Apple products, comes as smartphone makers and other companies globally grapple with supply chain issues, including a shortage of semiconductor chips.

IQE saw its share price crash by more than 20%, accelerating declines that have hounded the company all year. At 11.30am, IQE stock is trading 10.7p lower at 39.7p, having fallen from 88.3p in January 2021.

IQE now expects sales of £152 million compared to £178 million in 2020 and adjusted EBITDA, or earnings before interest, tax, depreciation and amortisation, of £18 million versus 2020’s £30 million. Even adjusting for the pound’s gains against the dollar this year, underlying sales are only expected to reach £164 million and adjusted EBITDA just £25 million.

LOST DECADE FOR PROFITS

‘That implies adjusted EBITDA will barely exceed 2012’s levels and may help to explain why the shares are trading no higher now than they did in spring 2011, even if they have still almost doubled from their pandemic-panic lows of March 2020,’ said Russ Mould, AJ Bell’s investment director.

Global chip sales are booming right now, and industry trade association forecasts are currently pointing to 20% worldwide revenue growth to a record $527 billion in 2021, with further gains expected in 2022.

‘Even IQE’s previous forecast for 2021, of flat sales and unchanged adjusted EBITDA, assuming no major currency movements, was a bit pedestrian in this context,’ said AJ Bell’s Mould.

‘The profit warning today is therefore even more of a let-down.’

RED PEN RECKONING FOR FORECASTS

Analysts at Peel Hunt have been forced to react to what they called ‘market malaise rather than share loss,’ with cuts to sales taking a hefty toll on profits for 2021, 2022 and 2023.

‘We downgrade revenue by circa 10% and EBITDA by around 33%,’ Peel Hunt told clients today of its 2021 changes. Estimates for 2022 and 2023 revenue face similar cuts while adjusted profit from next year and the one after have been chopped by 24%.

‘We believe that better market-oriented thinking, and deeper and more proactive engagements could mitigate some of this volatility in the future, although they admit the current low visibility IQE is currently dealing with.

‘This is something we believe the new chief executive could look to improve on,’ said Peel Hunt of the company’s announcement just two days ago to appoint a successor to founder Drew Nelson.

On Monday, 22 November IQE named New York-based peer GlobalFoundries’ Americo Lemos as its CEO from 10 January 2022, ending a rough year-long search for Nelson’s replacement. Nelson last year announced plans to step down after three decades at the helm of IQE. He will be become president of the board.

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Issue Date: 24 Nov 2021