Post on 08-Sep-2018
Enabling Advanced Technologies
IQE Plc
H1 2017 Results, September 2017
Drew Nelson, CEOPhil Rasmussen, CFO
Enabling Advanced Technologies
Safe harbour statement
No accountant, lawyer or broker has reviewed this presentation or commented on its merits. No representation or warranty is made by the Company or any of its officers, employees or agents as to the contents of this presentation.
This presentation does not constitute an offer or solicitation of an offer of or invitation by or on behalf of the Company to acquire any shares in the capital of the Company.
This presentation contains forward looking information of a financial and other nature that is speculative and that is based on a variety of assumptions that may or may not be realised. Such information is subject to risks and uncertainties that could cause actual results to differ materially. Such risks and uncertainties include, but are not limited to, those related to the business conditions and financial strengths of the various markets served by the Company, the level of spending by the Company's customers on its products and the ability of the Company to successfully manufacture and market its products. Given these risks and uncertainties, investors and prospective investors should not place any undue reliance on such forward looking information.
This presentation does not purport to be all-inclusive or to contain all the information that an investor or a potential investor in the Company may desire.
Enabling Advanced Technologies
H1 2017 Overview – Positioning for growth
• Continuing growth and diversity
Wafer sales up 17%, delivering 32% in related operating profit License income £1m (H1 16 £3.5m, included up front amounts) Strong cash generation and increased investment for growth
• Investing for growth Invested in H1 to “pump prime” VCSEL ramp New Foundry agreement - flexible and cost effective approach A scalable solution for significant expansion
• Multiple growth drivers beyond VCSEL
CS industry moving through inflection point IQE - broad IP portfolio for advanced semiconductor materials Depth and breadth of customer engagement
• VCSEL Ramp Sales up in all primary markets Accelerating growth in Photonics – sales up 48% Record June – VCSEL ramp for mass market
Enabling Advanced Technologies
H1 2017 Financial Summary
£’million 30 June 2017 30 June 2016 Change
RevenuesWafersLicensing
70.469.4
1.0
63.059.5
3.5
+12%+17%-71%
Operating ProfitWafersLicensing
10.69.61.0
10.87.33.5
-2%+32%-71%
PBT 9.6 10.1 -5%
Fully Diluted EPS (pence) 1.35p 1.46p -8%
Cash Generated from Ops 11.2 12.4 -10%
Capital Investment 15.4 7.6 102%
Leverage 41.9 35.4 18%
Enabling Advanced Technologies
£'m
Wafers License Total
H1 15
Wafers License Total
H1 16
Wafers License Total
H1 17
Revenue 53.2 - 53.2 59.5 3.5 63.0 69.4 1.0 70.4
Operating margin % 13% - 13% 12% 100% 17% 14% 100% 15%
Operating profit* 6.7 6.7 7.3 3.5 10.8 9.6 1.0 10.6
Interest, tax & MI (0.6) (0.6) (0.8)
Reported profit** 6.1 10.2 9.8
Adjusted FD EPS (p) 0.9 1.46 1.35
*Operating profit before exceptional items
**Reported profit attributable to equity shareholders before exceptional items
Delivering growth in operating profit
-
2.0
4.0
6.0
8.0
10.0
12.0
H1-15 H1-16 H1-17
Operating profit*
Wafers License
12.6% 12.3% 13.8%
Included up frontamounts
Enabling Advanced Technologies
Strong cash conversion
-
£2m
£4m
£6m
£8m
£10m
£12m
£14m
H1-15 H1-16 H1-17
Operating cash generation£'m H1-15 H1-16 H1-17
Operating profit 6.7 10.8 10.6
Cash conversation rate 79% 120% 112%
Operating cash generation 5.3 13.0 11.9
Capital investment (3.6) (7.6) (15.4)
Net cash from trading 1.7 5.4 (3.5)
Restructuring (0.8) (0.6) (0.7)
Interest (0.8) (0.7) (1.1)
Tax (0.2) (0.7) (0.9)
Net cash flow* (0.1) 3.4 (6.2)
*Net cash flow before, acquisitions and financing.
79%
120% 112%
Enabling Advanced Technologies
Financial Dashboard
con
sen
sus
con
sen
sus
con
sen
sus
con
sen
sus
* before exceptional items
112 114 133 70
0 0
0
-
£20m
£40m
£60m
£80m
£100m
£120m
£140m
£160m
FY14 FY15 FY16 FY17
Sales
17.6 19.0 22.1 10.6
00
0
-
£5m
£10m
£15m
£20m
£25m
£30m
FY14 FY15 FY16 FY17
Operating profit*
2.4 2.6 3.0 1.5
00
0
0.00p
0.50p
1.00p
1.50p
2.00p
2.50p
3.00p
3.50p
FY14 FY15 FY16 FY17
FD EPS*
19.6 22.6 24.3 11.9
0
-
£5m
£10m
£15m
£20m
£25m
£30m
£35m
FY14 FY15 FY16 FY17
Cash from operations
-
£10m
£20m
£30m
£40m
£50m
£60m
£70m
H114 H115 H116 H117
Leverage
0%
5%
10%
15%
20%
25%
30%
35%
40%
H114 H115 H116 H117
Gearing
con
sen
sus
con
sen
sus
con
sen
sus
con
sen
sus
Enabling Advanced Technologies
Background: How silicon chips are made …
Silicon Wafer(Semiconducting material)
Chip Fabrication
(Patterning, Etching, metalisation, packaging )
Device(eg smartphone)
Chips
But, silicon is not the only semiconductor …
Enabling Advanced Technologies
Compound semi chips
Silicon chips
Compound semis – the fastest growing semiconductor technology
Wafer Chip Device
We make advanced wafers
Which our customers
use to make the highest
performance chips
Combining a range of semiconducting elements…
… That have more advanced properties than Silicon
Enabling Advanced Technologies
How we make compound semiconductor wafers …
Epitaxy – engineering advanced materials
• Atomically engineered films (up to >400 individual films)
• Leading edge crystal growth technology
• Bespoke to each application
• Extensive qualification requirements
• Large barriers to entry
Enabling Advanced Technologies
Evolution of semiconductor technology
Internet
Ma
rket
siz
e
For illustration - not to scale
Single element– simple properties
Growth has been driven by miniaturisation (Moore’s Law) and scale
Reached the point of diminishing returns
Finite performance Ultra Low Cost
Multiple elements–engineer advanced properties
Superior performance-wireless, light, power, speed
Superior performanceHigher Cost
Hybrid Technology : “CS on Si”
Superior Performance of CS Low cost of Si
SILICON WAFER CS SUBSTRATE
EPI FILMS
SILICON WAFER
EPI FILMS
Enabling Advanced Technologies
The CS industry is going through an Inflection Point
Healthcare, Robotics & Autonomous systemsHeathcare, medical diagnostics & treatmentRoboticsSelf drive vehiclesMachine awarenessAdvanced Sensor Technology
Communications & Big dataMobile and infrastructure
Data storageInternet of Things
Wearables & TeleHealthcareSensing and biophotonics
Energy efficiencyClean energy (CPV solar)Solid State Lighting (LED)
Power switchingBase Stations
Factories of the Future
Defense and AerospaceSatellite powerCommunicationsUAVsInfra Red ImagingFood Security
Enabling Advanced Technologies
Preparing for inflection
The evolution of IQE to has been geared to this Inflection
Co
nse
nsu
s
-15
-10
-5
0
5
10
15
20
25
30
35
40
0
20
40
60
80
100
120
140
160
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 17*
H2
Co
nse
nsu
s
Sales £’m EBITDA £’m
SALES& EBITDA
* Reflects Consensus Sales and EBITDA for FY17H
1 A
ctu
als
Building the Platform
Enabling Advanced Technologies
Based around an IP portfolio to capture the changing markets
Global #1
>80% market share
Global #1
>50% market share
Technology Leader
Leading
outsourcer
Technology Leader
Strong IP position
Technology Leader
Strong partners
Technology Leader
Strong IP position
• An unparalleled portfolio of compound semiconductor materials IP
• Trade secrets, and 100+ patents
• Pedigree built over more than 20 years, collaborating with the brightest and best from leading Universities to Blue Chips
• IP environment very fragmented, IQE competes with different players in each market
• Breadth of IQE’s IP is a strong differentiator and is highly attractive to our customers
• We have created a virtuous circle with critical mass and momentum.
• This is reflected in our strong market share and technology leadership in our markets
InP
GaAs
cREOTMIII-V on Si
RF GaN
GaNPower
Sb IR
Enabling Advanced Technologies
And supported by a flexible, low cost and scalable approach to expansion
• Cardiff City Deal to fund infrastructure of new foundry
• 11 year lease
• 3 year rent free
• Option to purchase
• Part of the expanding CS cluster in the South West (> £300m investment)
• IQE to fund tools
• First 5 tools on order
• Capacity for up to 100 new tools
• £25m asset finance facility
Enabling Advanced Technologies
Basecase Outlook : Continuing the trend in growth and diversity
Growth
approx10%
Growth ~ low to
mid single digit
Strong double
digit growth
Enabling Advanced Technologies
Diverse range of growth drivers to accelerate beyond the basecase
• Near term VCSEL for 3D sensing, datacomms, consumer, & industrial
DFB full service wafers for FTTX (NanoImprintLitho..NIL)
GaN for RF Applications
• Mid term
• Longer term
Wireless Filters (cREO) and next generation wireless
GaN for Power Switching and Lighting
High efficiency, low cost solar power generation
Mass market advanced InfraRed
Broader adoption of Hybrid CS-on-Si for multi markets
Enabling Advanced Technologies
VCSEL – The era of low cost Laser Technology
VCSEL’s are High performance Low cost Lasers that are transforming :• Sensing• Communications• Consumer• Industrial
Enabling Advanced Technologies
VCSEL
epiwafer
VCSEL chip
Magnetic storagePrinting
Data centres
Cosmetic
3D Sensing
Industrial Heating
VCSEL – The Applications
LIDAR
Enabling Advanced Technologies
VCSEL – The Advantages & IQE’s Positioning
Manufacturability, on-wafer fabrication and test, LED like – low cost
• Mass production already transitioned to 4” (IQE Global leadership)
• Qualified on 6” GaAs, leverages existing wireless fabs and economies of scale (IQE First to market)
• Price point enables new markets for lasers, a new platform (IQE leadership)
High direct modulation speed • Datacom applications (IQE in production)
Low power consumption • Power efficiency (datacentre) and mobile platforms (IQE in production)
Highly reliable
Array fabrication on wafer • High power applications, 3D sensing (IQE in production)
Beam properties • Ease of packaging at low cost – high volume consumer applications
Enabling Advanced Technologies
DFB - full service wafers for FTTX
• DFB laser = Distributed Feed Back Laser
• Critical for fibre optic communications• Fibre to the premises (FTTX)• Data Centre• Core network
• DFB wafers : Base + grating + overgrowth
• IQE historically provided Base epi only
• We have developed a disruptive technology for grating:• NIL – Nano Imprint Lithography• High perform (flexible), high throughput and low cost
• Multiple qualifications for “full service” wafers (2-3x value add)
Grating – viewed by Scanning Electron Microscope
XX X X X X X X X X X X X X X X X XXX XX XXX X XXX
Overgrowth
Grating
Base
Enabling Advanced Technologies
GaN for RF Applications
• Gallium Nitride (GaN) has multiple, rapidly growing RF application areas
• IQE has world leading technology for both GaN on Silicon Carbide (SiC) and GaN on Silicon
• Strong engagement with most major industry players
• Strong growth
RF EnergyBase Stations
Military
Radar
Enabling Advanced Technologies
Wireless filters (cREO)
$0.0b
$2.5b
$5.0b
$7.5b
$10.0b
$12.5b
$15.0b
2013 2014 2015 2016 2017
Mobile Device RF TAM
~15% CAGR
Filter Content $0.25 $1.25 $4.00 $7.25
Switching / Tuning $0.00 $0.25 $1.50 $2.25
Power Amplifiers $0.30 $1.25 $2.00 $3.25
Other $0.00 $0.00 $0.50 $0.50
Total RF content $0.55 $2.75 $8.00 $13.25 +
Typical2G
Typical3G
RegionalLTE
GlobalLTE
Potential routes to access using cREOTM
technology
Enabling Advanced Technologies
Markets & Industry Challenges for Next Generation Wireless
Parameter Limiter ReasonIQE Potential
Solution
IQE Capab
ility
Power Added
Efficiency(PAE)
Offset voltage
Fundamental to current materials
solutions
Alternate collector
Dilute nitride base
Frequency
PA Cutoff frequency
Fundamental limit of GaAs HBT
InP-based HBT
GaAs-based PHEMT
Filter Frequency
Fundamentalrequirement for
thin piezo-electric layers
Novel epi-solution (AlN)
Device Size Chip SizeFundamental limit
of feature sizeNovel integrated
device stack
Proprietary and Confidential
Enabling Advanced Technologies
Compound semiconductors for Power, RF and Lighting
10 100 1K 10K 100K 1M 10M
10
100
1K
10K
100K
1M
10MSiC
GaN
Silicon
Operating frequency (Hz)
Ou
tpu
t Po
wer
(V
A)
High Speed
High Power
Power inverters
EV/HEV
Micro InvertersPC (DC-DC)
Data Centre
Power Inverters
Enabling Advanced Technologies
Applications for IQE Solar Technology
• High efficiency solar cells
• 44% efficiency (Silicon ~18%)
• Power Generation Markets
• Satellites
• LEO’s
• Drones
• Terrestrial
Enabling Advanced Technologies
Mass market advanced InfraRed
The Infrared (IR) business unit specialises in the manufacture of compound
semiconductor substrates and epitaxial wafers that are used in longer wavelength infrared
imaging, sensing and emitter product applications
Medical DefenseSecurity Environmental
Non Invasive Glucose
Monitoring
Border Control Infrared
Homing/Seeking
Enabling Advanced Technologies
Broader adoption of Hybrid CS-on-Si for multi markets
• Founded in the 1980’s IQE is one of the pioneers of compound semiconductors materials technology.
• IQE has been at the cutting edge of the industry for several decades – working with the “brightest and best”
• IQE has built a powerful portfolio of IP geared to combining different material systems
• This is ultimately geared to combining compound semiconductor with Silicon for the highest levels of performance at the lowest cost
• crystalline Rare Earth Oxide (cREO™) provides a powerful and flexible technology which provides a clear route to meet this ambition
• The transition will happen application by application, increasing IQE’s addressable markets for many years to come.
Epitaxial layerscREO™ interface layer
Epitaxial layers
cREO™ Approach
Standard III-V epi
Enabling Advanced Technologies
Summary
• The CS Industry is moving through an Inflection Point
• IQE has geared its strategy and evolution to capture this opportunity
• At the heart of its strategy IQE’s IP portfolio is a key differentiator
• This is supported by a flexible and cost effective route to scaling the business
• This has translated into market leadership for IQE, with a sound “Basecase” for continuing growth
• However, the breadth and depth of IQE’s engagement in a broad range of near, mid and long term opportunities provide strong upside to the Basecase
• The start of the VCSEL ramp in H1 provides a key milestone on this journey