IQE plc Sky-Rockets On Semiconductor Sales Growth

Shares in semiconductor manufacturer IQE plc (LON: IQE) closed up 11.5% after an upbeat full-year trading statement.

Zach Coffell

Zach’s investment career began on his 20th birthday when his father gave him a copy of The Intelligent Investor, by Benjamin Graham, and the Fool.co.uk website address! He believes in buying quality companies with durable competitive advantages and his ideal holding period is forever. Zach owns shares in: boohoo.com (LSE: BOO), Craneware (LSE: CRW), GlaxoSmithKline (LSE: GSK), Judges Scienfitic (LSE: JDG), PZ Cussons (LSE: PZC), Somero (LSE: SOM)

Published 20 January, 2015 4:58 pm GMT

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Shares in the leading global supplier of advanced semiconductor wafer products and services, IQE (LSE: IQE), were up 11.5% on Tuesday after releasing an upbeat trading statement for FY2014.

Strong growth across the group saw net debt fell from £34.4m to £31m over the year and it;s expected to further reduce throughout 2015.

IQE commands a market-leading position selling wafer products to the wireless communications market. A major contract renewal with a tier-one customer signed in early 2015 has further boosted IQE’s market share of the sector to more than half. 80% of last-year’s sales were driven by the wireless industry, which IQE says should continue to “enjoy significant and long-term growth.”

The Photonics business, which accounted for 14% of sales in 2015, grew revenues by over 20% year-on-year. Long-term supply agreements signed over the period further strengthened relationships with major tier-one photonics companies.

The Infrared business also won contracts, including a $1.1m order in October 2014 and a $3.25m one in January 2015.

The company also moved its advanced solar compound photovoltaic technology from the development stage into pilot production, although management admitted it took “much longer to develop than initially expected.” IQE received initial orders for the technology in Q4 2014 and is pressing ahead with its plans to drive production during 2015/16.

Dr Drew Nelson, CEO and President, said:

“We are excited by the market developments that are leading to the increasing deployment of compound semiconductor solutions across a range of applications, and that consequently offer potential for IQE to deliver continued steady growth as a result of the Group’s unique position in the Compound Semiconductor materials marketplace.”

The results place IQE group on a demanding P/E ratio of 23 and management’s positive outlook for the coming year is likely baked into the price.

The problem with investing into growth companies with positive momentum is that all it takes is one earnings or sales miss and the shares can re-rate downwards suddenly when expectations aren’t met.