Towards the end of H117 one of the numerous development programmes for photonics applications that International Quantum Epitaxy (LON:IQE) has been working on moved to volume production. The programme, which we infer relates to 3D sensing in the iPhone X, potentially has a transformational impact on IQE’s performance. Until there is clarity on the rate of roll-out of the new phone however, our estimates, which are unchanged from the trading update in July, model a cautious ramp-up in IQE’s epitaxy sales. The share price is looking for performance substantially ahead of this, which our scenario analysis suggests is achievable. Importantly, even if demand for the iPhone X is muted, IQE is engaged in multiple photonics development programmes with the potential to generate transformational levels of growth.
Photonics underpins H117 growth
The strong photonics growth noted since FY14 continued into H117. A 48% leap in photonics revenues and a 10% currency tailwind delivered a 12% y-o-y increase in group revenues during H117 to £70.4m. Adjusted operating profit from the wafer manufacturing operations grew by 32% to £9.6m. However, this was offset by a reduction in licence fees, which benefited from one-off upfront payments in H116, resulting in small (2%) decrease in group adjusted operating profit to £10.6m.
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