Will IQE stock price rise on a 7% revenue growth forecast?

As EIQ [IQE’L] prepares to release its half-yearly business update on September 6, the UK supplier of wafers and materials to the semiconductor industry has been caught in wider headwinds within the chip manufacturing industry .

The past year has been a turbulent time for semiconductor stocks, with the continued shortage of chips causing ongoing challenges for manufacturers around the world. At the same time, slowing computer and smartphone sales are putting additional pressure on chipmakers.

On Aug. 30, Citi analyst Christopher Danley wrote in a research note that “we are entering the worst semiconductor downturn in a decade,” with even relatively strong industries like auto manufacturing showing signs of correction.

However, there could be opportunities for IQE as rising tensions between the US and China over Taiwan prompt countries like the UK to bolster its domestic chipmaking industry, should further disruption occur. of the supply chain. Additionally, the company holds a significant market position in several types of wafers required for specialized products such as 3D sensors and 5G base stations. It should also benefit from the generalization of these technologies.

IQE stock price outperforms peers

Compared to many of its peers in the semiconductor industry, IQE’s stock price has not suffered significant losses. Year-to-date to September 1, the stock was down 2.5%, while the iShares Semiconductor ETF [SOXX]which tracks some of the world’s largest chipmakers, fell 32.8% over the same period.

IQE shares rallied earlier this month despite a lack of major news, hitting a 2022 intraday high of 45.28p on August 1. Although it has since fallen back to 33.7p on September 1, the upcoming earnings could be a catalyst for the stock to rally.

Despite the uncertainty in the global chipmaking industry, analysts generally remain optimistic about IQE’s outlook ahead of its first-half update. According to FinancialTimesas of August 25, the stock has two ‘buy’, three ‘outperform’ and one ‘hold’ ratings, with a median price target of 62.5 pence, representing an 85.5% upside from its closing price on September 1.

IQE forecasts weak revenue growth in 2022

IQE announced disappointing results in its 2021 annual results on March 29 amid continued difficulties for the chipmaking industry. Revenue fell 13% year-on-year from £178m to £154m, and EBITDA fell 36.6% from £30m to £19m. The company also widened its operating loss from £6m to £20m, with capital expenditure rising from £5m to £15m. While IQE’s wireless and photonics businesses experienced strong growth, revenues fell 12% and 17%, respectively, in 2021.

Despite the muted performance, IQE remained confident in its July trading. The company said at the time that it expected to report revenue of at least £85million, which would represent a 7% year-on-year increase, and would match revenue from the previous year of £79.5 million at constant currency. base.

For the full year, IQE maintained its “low single-digit” revenue growth forecast, which should be weighted towards the second half of the year. Analysts largely agree with this consensus: four analysts interviewed by the FinancialTimes offer a consensus estimate of £161.8 million for the year 2022, which would represent a 5% increase on 2021.

Given the challenges ahead, IQE remains focused on longer-term opportunities as supply chain issues ease. “The group is focused on executing the strategy of pursuing sustained long-term growth through diversification and value creation,” the company wrote in the business update, adding that “to Further milestones are planned for the second half as the company is positioned for growth.”

UK falls behind on US and EU chip policy

While IQE has yet to return to profitability, the company is at the forefront of technologies that will only grow in importance in the years to come. It holds a leading position in the market for the production of VCSEL wafers, a key component used in 3D sensors, which play an important role in emerging themes such as the metaverse, the internet of things and augmented reality. Likewise, it is one of the largest producers of GaAs wafers, used for 5G mobile handsets, base stations and WiFi 6 routers, another area that is expected to see significant growth as 5G technologies and 6G continues to evolve.

Additionally, IQE could benefit from Western countries’ efforts to expand chipmaking capacity if geopolitical tensions between China and Taiwan – the latter responsible for about 90% of the world’s most advanced semiconductors, according to a report. 2021 Boston Consulting Group report – causing further disruption to supply chains.

However, while the US and EU have both responded by stepping up domestic manufacturing – Europe has passed a CHIPS law that includes €43 billion in subsidies and the US has passed a bill similar with $52 billion in subsidies for chipmakers – the UK could fall behind. “The UK is lagging…in terms of concrete policies to support the sector,” said IQE chief executive Americo Lemos. FinancialTimes in August.

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Sallie R. Loera