Cardiff chipmaker IQE profits but shares fall amid uneven market recovery

British chipmaker IQE posted a profit in the first half of the year as demand for its semiconductor wafers continued to recover.

The Cardiff-based group, which makes epidemiology wafers for use in laser hair removal and facial recognition sensors in iPhones, posted a core profit of £6.6m for the six months to June 30, after suffering a loss of £5.7m during the same period last year.

Profitability was driven by 27 percent revenue growth, demonstrating a recovery after two years hampered by post-Covid supply chain restrictions and a sharp slowdown in demand.

But IQE shares fell more than 10 percent in mid-morning trading as the group warned it expects “more moderate growth” in the second half as the ongoing recovery in demand proves uneven.

The group said: ‘Signs of recovery continue in the global semiconductor industry, although the pace of progress varies across regions and market segments.

‘IQE will maintain a strict focus on structural cost controls, footprint optimization and operational efficiencies.

‘This will enable the company to continue to improve its profitability while building its market-oriented technology roadmap in partnership with key customers.’

IQE said it now expects the full year to be “at the lower end” of analyst forecasts, which currently predict revenue of £130m to £154m, and adjusted earnings before unforeseen events of £11m to £17m by 2024.

Apple supplier chief Américo Lemos added: “We expect the market to continue to show pockets of recovery during the second half, resulting in more moderate growth for 2024 on an annual basis.”

However, IQE is hoping to get a boost from plans to list its Taiwanese operating subsidiary on the Taiwan Stock Exchange.

IQE plans to sell a minority stake in IQE Taiwan, thereby maintaining control of the business after the IPO, and use the proceeds to fund its growth strategy.

Lemos said: “We look forward to moving forward with the planned IPO of our Taiwanese subsidiary, which will help accelerate our diversification strategy in the GaN and microLED power market, and provide significant additional cash resources for the Company.”

IQE shares fell 13.9 percent to 20.4 pence in early trading, paring gains over the past 12 months to around 23 percent.

Peel Hunt analysts declined to make any changes to their IQE forecast, maintaining a 61p target price “despite near-term market volatility”.

They said: ‘We remain long-term buyers.

‘Any recovery should translate into improved cash generation. In the last ‘boom’ of fiscal years 2016-20, 13 percent of revenues were converted into operating cash flow, while in the ‘bust’ of fiscal years 21-23, only 6 percent.

We believe this figure could improve into double digits from FY25E onwards.