Q: Is a stock market listing on a different index on management’s short-term agenda?
A: IQE believes the LSE AIM index provides an excellent platform for growing companies. In the short-term, IQE has no plans to transition to another index. Considerations for doing so may be assessed periodically as the company grows and expands.
Q: Has anything materially changed since the trading update of June 12th?
A: As a company listed on the AIM index, IQE is bound by continuing disclosure obligations. These require the company to make a notification of any material changes relative to financial and business performance, which if they were to be made public, would be likely to cause a significant movement in the company’s share price. No such notification has been made since the date of IQE’s last Trading Update as there have been no material changes to the company’s position. IQE is due to issue H1 2020 results on 8 September 2020.
Q: Are you able to provide margin targets by division?
A: IQE publishes historical operating margins by division in its Annual Report. The company is not currently providing full year guidance for 2020, due to the unprecedented levels of uncertainty in the external environment.
Q: What is the ‘target’ time frame for manufacture and supply of fully qualified 8-inch VCSEL wafers?
A: The development and subsequent introduction of new products is a complex and dynamic process with many technical, operational and commercial milestones. The development of an 8 inch VCSEL remains a core component of the company’s technology roadmap with production revenues possible in the medium-term (please see slide 12 of our FY 2019 Results Presentation for more information on our technology roadmap).
Q: Does GaN on Si still represent an opportunity for IQE or has emphasis shifted to GaN on SiC?
A: Both GaN on SiC and GaN on Si represent significant strategic opportunities for IQE. The majority of current Wireless Infrastructure revenues (which represented circa 30% of Wireless segment revenues in 2019) relate to GaN on SiC, which is currently a more mature technology. GaN on Si represents a strong future opportunity for IQE, given its performance and cost dynamics. The company is working with multiple chip companies and partners to expand both technologies, for 5G communications and other uses including power electronics.
Q: The Newport facility has space for 100 reactors, given only 10 are in situ and 10 spaces are ‘ready’ would you agree that IQE has too much space?
A: We strongly believe that advanced semiconductor material solutions will both underpin and enable the 21st century economy. Our Newport mega-foundry is a state-of-the-art facility capitalising on 30 years of compound semiconductor experience, which provides us with the space to scale our business for the mass production of several advanced materials technologies and benefit from significant economies of scale. IQE’s investment in capacity expansion, such as in Newport, is focused on serving a number of new and emerging high-growth markets to meet increasing demand for our compound semiconductor epiwafers, driven by macro trends such as 5G Communications and the proliferation of Connected Devices. By constructing the mega foundry in a modular approach, we have been able to stage our investment and ensure efficiency in the usage of power, heating and lighting. Over time and as volumes grow, the operating leverage and superior economies of scale of this site will enable margin expansion.
Q: What is IQE’s present number one priority (COVID-19 issues aside)?
A: IQE is a growth-oriented business at the cutting edge of technological development. As such, it is difficult to identify a single ‘number one priority’. Our business model is to drive shareholder returns through investing in R&D and manufacturing capacity, bringing new products to market, building deep customer relationships as a materials solutions provider and scaling our business for mass production. We have high priority projects and initiatives in all of these areas.
Q: Given the arbitration award in favour of IQE in a recent confidential legal case, do you anticipate any material impact to the company? Can you inform investors if this patent issue is now ‘closed’?
A: Given the confidential nature of the dispute and ongoing associated legal process, IQE is currently unable to disclose or comment on specific details relating to the matter. Given the nature of the award in IQE’s favour, the company is confident the eventual outcome will not be materially adverse. However, there is currently no certainty of a materially favourable outcome. The costs associated with the ongoing legal process are expected to be materially lower than those incurred during the arbitration process.
Q: IQE has made no secret of its intentions to gain traction in the RF Front End filter market using its cREO patented technology. When can investors realistically expect revenues from filters?
The roll out of 5G networks is a multi-year mega replacement cycle that will eventually see the deployment of true high frequency, high capacity, low latency networks. Such networks will require performance characteristics (eg heat, power) that far exceed the capabilities of current components. IQE believes its cREO technology will address many of the performance challenges but production revenues will be limited in the short-term, being linked to the longer-term deployment of mmwave technologies. IQE continues to develop the cREO technology with multiple possible routes to market, including filters for RF front end modules.
Q: Does the Board envisage possible acquisitions?
A: We continue to assess the external environment to ensure we have all the capabilities required to execute our strategy. We will consider the merits of any potential opportunity as and when they arise.
Q: We know that Android smartphone manufacturers are increasingly using Face ID and world- facing VCSEL use for TOF applications. Is IQE in direct communication with these OEMs regarding their requirements or is this done by the module manufacturers you supply?
A: As a materials solutions provider, we are in regular contact across the supply chains including with OEMs and chip companies. We have qualified with and are qualifying with multiple chip companies in Android supply chains for VCSELs. Our technology is relevant to both Time of Flight (ToF) and Structured Light (SL) applications.
Q: On a hypothetical ‘desert island’ where only one segment of the business could be preserved or saved, and that decision was based on potential growth, what is the consensus view of the IQE Board on whether they would choose Wireless or Photonics....and why?
A: IQE is a growth-oriented business at the cutting edge of technological development. Our business model is to drive shareholder returns through investing in R&D and manufacturing capacity, bringing new products to market, building deep customer relationships as a materials solutions provider and scaling our business for mass production. We have made a conscious decision to focus on being market leaders in both Wireless and Photonics markets which both have significant opportunity for growth and returns in the coming years.
Q: Are you able to share any information about contribution margins or provide a range of forward-looking guidance?
A: We do not release details of our contribution margins as this information is commercially sensitive. Additionally, as stated in our last Trading Update, given the unprecedented levels of uncertainty in the external environment, the Group is unable to provide any guidance for the full year at this point in time.
Q: Can you share more detail about recent product qualifications and partners?
A: IQE is bound by strict non-disclosure agreements in relation to our customers, suppliers and product qualifications. This level of confidentiality also allows us to best protect our intellectual property. When we reach significant qualification milestones with our customers, we typically release announcements to provide the market with high level details.
Q: What are the two small, emerging revenue streams that show the most internal excitement for extreme upside, ie the really cutting edge products that could be really big very quickly based on what the company has seen, heard from your customers?
A: IQE has a unique breadth in our advanced materials portfolio and depth in capability for developing new technologies. In the Wireless segment, the increasing integration of front-end module components and performance requirements is expanding our market opportunity at the same time as new technologies address the ramping 5G infrastructure rollout. In Photonics, we have a technology roadmap to address the proliferation of 3D sensing, the expanding datacoms market and exciting new technologies such as environmental and health monitoring. Limiting this to just two opportunities isn’t possible (please see slide 12 of our FY 2019 Results Presentation for more information on our technology roadmap).