LON:IQE | IQE Plc - Now A Strong Target For Intel ?

9th Feb '14 by Sector Investor

14 comments 27556 reads

IQE (LON:IQE) ........is a leading global supplier of advanced semiconductor wafer products and services to the semiconductor industry. Its products are found in many leading edge applications,including mobile handsets, wireless infrastructure,optical communications and storage,thermal imaging, medical products,high efficiency concentrator photovoltaic (CPV) solar cells.

The company has been prudently managed and in recent years has made some careful but clever acquisitions that has strengthened both the balance sheet and also its market position.The company,s most recent financial statements show that some of those decisions made a few years back are now starting to pay off even in a difficult market,and this has lead to a steady rise in revenues and earnings per share.

Dr Andrew Nelson - IQE President and Ceo

In 2011 it was rumoured and later confirmed that Intel Corporation were considering a buyout of IQE with offers around £500m ,at the time it would have been a bold move by Intel given IQE,s earnings and debt position in 2011.However since that time the fortunes of both companies have actually reversed with Intel struggling to fend off its competitors and maintain its earning power,and IQE on the other hand growing its key and core business at a healthy level.

In a recent interview,new Intel CEO Brian Krzanich indicated that the corporation are now focused on building its exposure in the mobile & tablet chips market,and potentially in to the new area of wearable devices.It would be astonishing if Intel were not looking at the likes of IQE again for a potential buyout,because as has been proved in the last few years,the reliance by Intel on the PC Chips market and the unwillingness of the corporations former management to follow the trend of the mobile market has cost them dearly.It could be argued that had Intel actually taken over IQE back in 2011 the corporations performance would now be looking somewhat more positive.

So in conclusion a takeover of IQE by Intel now looks compelling and makes sound business sense.

http://www.iqep.com/

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oldnotbold

10th Feb '14

Dear Paul, irrespective of the potential takeover, the IQE story seems interesting. It looks cheap (13x 2013 earnings, 9x 2014), and is strongly cash generative, paying down debt in H2 according to the trading statement, as well as paying off £14mn of deferred payments. Currently the company has a poor Altman-Z score of 1.77, but as the debt comes down it stops being a concern. (It would be very interesting to screen the performance of companies whose Altman-Z score move out of the danger zone). Its technology is unique, and gives it access to a wide range of rapidly growing applications in solar and photonics. Revenue growth could be too low if the Philips deal bears fruit. As to margins, the Kopin Wireless acquisition announced in January 2013 is meant to generate significant cost savings of £7mn (although this is unclear when?). Overall, it seems to have an attractive combination of a decent existing business, strong potential, an improving balance sheet, and a low valuation. The fact that no-one responded to your post also shows that it is off the radar for most investors.

DJLJ23

12th Feb '14

I like IQE on the fundementals, but looking around i find that a Number of Blackstone companies have been building up a short position. source Castalain Capital
Fund manager % short Change Date changed/created
BlackRock Advisors (UK) Limited 0.57% ? -0.13% 2013-10-16
BlackRock Institutional Trust Company, N.A 1.20% ? 0.10% 2014-02-05
BlackRock Investment Management (UK) Limited 2.29% ? 0.12% 2014-02-07
Ennismore Fund Management Limited 1.04% ? 0.07% 2013-10-30
in total about 5%, they seem to have been building this for at least ayear
So i wonder what they are seeing, but we are not?

Jon1958

18th Feb '14

I have spotted this short as well and it has built further recently as the shares continue to drift lower.
Given the bullish nature of the recent trading statement have decided to hold for the full results.
Time will tell

SevenPillars

I seem to recall that about a year ago there was a story around IQE that US giant Qualcom was looking to get into its market. Not sure if the shorts jumped on board from there, but ever since then there seems to have been heavy short selling of this company, especially after any upward move. Not sure what became of the Qualcom "rumour", but IQE seems to have continued to do reasonably well, but never seems to join in the momentum party that other techs in the smaller companies sector have been on in the last few years. Most brokers seem to be giving this company a much higher rating, but it never takes off. It might look like manipulation and market makers driving down the price and up when it suits them, but it's difficult to figure out what is going on here. I suspect that if there was any real takeover talk this would probably fly and the shorts would have to run for cover.

Sector Investor

23rd Feb '14

In my opinion there are at least two big american corporations that would be very keen to purchase IQE,and in the case of Intel as i set out in the article i think the comments of their new Ceo since taking the helm is a real seed change of focus.I think Intel are so far behind in the tablet and wireless arena that an obvious option would be for them to buy their way in to a position where at least they can compete.

Recent trading statements do show IQE as a strong market participant now and they have a future pipeline that should see this success build.The company must be a strong takeover target now if not in the past.

bsharman

27th Mar '14

I would be interested to hear what you all thought about the results yesterday and subsequent share price decline. The market seems to hate this one...

fek47

29th Mar '14

I agree it's puzzling. Will be interesting to see what Simon Thompson has to say in his forthcoming article on IQE (LON:IQE) on Monday.

I for one will certainly be attending their AGM in May to see if I can get under the skin of what deep-seated problem may exist that the shorters know about that we don't...

djpreston

31st Mar '14

fek

Youre not the only one who is somewhat bemused bythe reaction to a perfectly good set fo figures. Not as if the company is standing still has any real red flags financially nor is it on a gangbuster type rating. Very odd.

For some time BlackRock have had a short position on the company. Total short positions in the company are almost 6% of the stock. This is probably more than enough to manipulate the price given how many trades may happen on an average day. You have to assume that BlackRock are probably gambling on it going bust at some stage, as there has been little other fundamental news in the last year that would give them the ammunition to keep the price down. The Qualcom story from a year ago is the only one that has emerged to suggest potential major competition and thus far it seems to have been a damp sqib. It would be interesting to know why BlackRock hold their position, but it will probably take either a takeover, a massive news story or some blow you away results and increase in profits from IQE to make them run for cover. However, it would seem that regardless of what the company does at the moment the share price seems to fall, so yes it is a strange one, other than a 6% short position which gives the likes of BlackRock a lot of firepower to keep the share price down. They've been successful, bulls have stayed away.

cig

It's hard to fathom what their competitive position is like though. In this business you can easily be left behind in the next process iteration and then only have a quickly depreciating asset going to zero. If it was the case, the current rating would be fine (you don't want to pay full price for an end of life business).

We seem to be concentrating on blackrocks short position, but approx 50% of shares are held by other institutions (according to iqe website, for last year), and i can see no rns suggesting they have reduced their holdings. To me it would appear that its not only the pi who is not seeing what blackrock sees.
Significant holdings below from IQE site (aug 13). If any body has access to more accurate info, please advice

AXA Framlington Investment Management 68,278,798 10.57%
T Rowe Price Inc 53,300,625 8.25%
Barclays Stock Brokers Limited 32,998,133 5.11%
Four Capital Partners 32,889,599 5.09%
Herald Investment Management Limited 29,733,393 4.60%
Nelson A W Dr 29,325,132 4.54%
Hargreaves Lansdown 25,797,790 3.99%
M&G Investment Management 24,378,065 3.77%
TD Direct Investing 23,368,141 3.62%

Todays annocement ref iqe "has delivered the first 200mm (8”) GaN on Silicon wafers into the Singapore-MIT Low Energy Electronic Systems (SMART-LEES) program"" should be good in the long term if it can be demonstrated that iqe technology can be built on updated current production lines.

T Rowe have recently increased to over 13%...

AS I say, its an odd one, especially with T Rowe (who I have a lot of time for) increasing to 13%. Thats a pretty big blue chip list of backers in terms of instos and only a 6% short with BR? It just makes no sense. Then again, a nice bounce today. Most bizarre.

Daniel Rudd

18th Sep '15

This has just popped up on the stock ranks radar. Anyone have an opinion on this company?

IQE Plc - Now a strong target for Intel ?

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