IQE - doing what Minervini predicts

up another 8% today.

Taking off today. See my chart and post above. RNS today shows very good progress and free cash flow. Also shorts down to 1.6% and Ennismore still have around 13 million shares to buy (short squeeze in play).
The market for IQE wafers is taking off.

IQE chart looks very positive from a Minervini perspective. After a torrid two years or so everything seems in place for a significant re-rating. The wafers IQE makes are world class and in high demand for 5G phones, base stations and Lidar etc.  

Use the expand button top right to see whole 6 month chart.

Good trading update today and price up over 25%

IQE (LON:IQE) On Wednesday morning the release of 2018 results should shed some light on the future prospects of IQE. The results are likely to be poor compared to prospects at the beginning of 2018. This the result of sales below estimates due to Apple cutting back orders for the iphoneX and the cost of setting up the new reactors at Newport. They have also written off the cost of a lease agreement for property not required. Apple only represent a small and probably diminishing proportion of sales.

The most important part of the results will be the forward looking statements about sales prospects and the possibility of listing on the main market.

The share price has recovered somewhat to circa 90p and the shorters have declined to 8.2%. A new FD (following the tragic loss of the previous FD) and chairman are in place. Large investments by T R Price 11% and Oppenheimer 17% of shares show support for the company. These facts and the prospects for new technologies IQE are bringing to the market place could lead to a re-rating.

Wednesday and/or the days before and after could be hectic for the share price.

minervini predicts don't fight/invest against a stage 4 trend

IQE (LON:IQE) - just came to know about it.. disappointing..

HARD LESSON TO ME: Don't keep holding the stock when there are significant shorts. Cannot fight with Mr Market - just know that others are not stupid :-(

Ouch.

Nasty trading update / profit warning this afternoon. Especially in these jittery conditions.

Glad it's a very small position for me.

BTW does anyone know what has happened to Sweenoid, the IQE super bull and chief drum beater at Advfn? He hasn't posted for some months.

New CFO appointed - see RNS. Experienced, and currently ARM CFO. Share price up and hopefully H2 update in December will lead to re-rating.

"follow the madness of the crowds but be among the first to come to your senses"

IQE (LON:IQE) Monthly chart

came close enough to testing the .618 retracement off the June 2017 lows 

IQE (LON:IQE) Daily chart 

2 X near perfect AB=CD patterns 

Low volume test of a high volume swing point low 

Gap from the 17 July 2017 closed 

Bullish One White Soldier reversal candle off the lows 

Shorts reduced by approx 1% last week, however sorters must still be very confident as shorts still at 11.04% 

Decision time?

The issue with IQE (LON:IQE) as I see it is that too many people focus on the demand side of the equation and speculate about Apple in particular. The reality is that there is no shortage of demand for the wafers IQE produce. The problem is the supply side where the board have been fairly cautious in the number of machines they have deployed. They are working at reducing down time by moving productions between factories, so machines will not have to switch between photonics and wireless, but the real challenge for me is whether they can demand higher premiums and/or work their way up the value chain. Until that happens they are a little stuck with the volumes they can produce, and while that is growing, each machine procured reduces profit, which enables the shorters to cry manipulation, and a large PI base to be manipulated. Also, it just seems that every set of results there is something exceptional that stops profits being all that was hoped for: customers reducing inventory, extensive product development for major customer etc. I hold, for my sins!

I held this share for a while last year, lost quite a bit before being stopped out. I made a mental post-it note and stuck it on my brain never to buy a share that was such a big favourite of the shorters.

I'm guessing that a lot of the shorters must have closed their positions by now? If not, its probably ripe for a squeeze. A bit risky though. I'd like to see real evidence that it has fresh momentum before going back in.

"After Apple launched its new iPhone XS and XR range, there were positive implications for UK-listed semiconductor wafer maker IQE" according to analysts at Canaccord:

https://www.share.com/stock-markets-and-news/external-news?articleId=894646

An excellent post from Sweenoid / Dave Sweeney about the IQE AGM yesterday. This was posted on ADVFN.....


My AGM report-sit down, make a cup of tea.

If anybody saw two middle-aged men wandering circuitously down Penarth High Street last night I hold my hands up and admit that Ken ( Hammerd)and I were responsible.! The AGM this year was a very successful affair, I took no written notes so the following is a summary of what I can recall after rather a boozy( understatement) post AGM, please can other attendees dot the I’s and cross the t’s and fill in what I have left out ( thanks Xylos for your contributions)

First things first, it was a delight to meet so many other investors- too numerous to mention, The usual number count for previous AGMs was approximately 6 to 10, so I’m sure that management were relieved that they had hired a large venue for this year’s meeting, because it was extremely well attended (60-70?).
Yesterday’s RNS was a very welcome start to the day, with 2 highlights for me, 1st the obvious statement “ we are actively engaged in VCSEL qualification programmes with over 10 additional key VCSEL chip manufacturers, which are progressing in line with the board’s expectations”, I bet anything that no one reading this can name half of those New customers ;-), I certainly can’t, that list must occupy almost the entirety of worldwide VCSEL chip firms,remember that list WILL NOT include Lumentum and Himax and Finisar who ( imho)we are already supplying ( the 1st is the biggie). I Will come back to this when I discuss competition later in what is likely to be a very long read.

The second main highlight for me of the RNS was the future appointment of Phil Smith to non-executive Chairman, which in large part answered my intended succession planning question.Phil Smith was my preferred first choice and I’m absolutely delighted ,as everyone should be, this guy is high calibre.He was CEO of Cisco for many years , he has a huge reputation in the industry and is widely respected and I can’t think of anybody better suited to replace Godfrey Ainsworth in the chair. As a new non- exec last year and now a veteran, he did his best to introduce and chat to as many investors as possible, a top class acquisition as a future chairman. In my conversation with him, he made his ambitions for the company clear, his enthusiasm and optimism was obvious and infectious, he is a good and natural communicator and will be a massive asset to IQE going forward

OK, the meeting and in no particular order, 1st the all important ‘competition’ question. To be honest and frank, our CEO basically forensically ‘dissed’ them, whilst demonstrating no complacency at all. He reiterated that the ‘outsource model’ is the way to go, for chip manufacturers and the barriers to entry. I have talked a lot about this in the past, so won’t repeat myself, but the key message to take away is the following, and imho this forms almost the entirety of IQE’s competitive advantage in the next 5 years. IQE is WINNING market share from its competitors in the ‘wireless’ division, despite the opposition being aggressive on pricing!epitaxy for wireless wafer epitaxy is relatively simple, each wafer having only 10-20layers. What hope have they got of ‘stealing’ IQE’s VCSEL business where wafers contain near 400 layers? , and are magnitudes more difficult to design and manufacture, whilst IQE are pinching their bread and butter business from under their feet? I would discount serious opposition emerging for many years to come...and so does the CEO, he went through every competitor they have and explained why that is the case, I thought he was rather persuasive;-)

Next,Patents and the possibility for new licensing revenues :-)

IQE have acquired a rich vein of patents, in 3 interesting area’s,cREO and most recently Quasi Photonic Crystals (QPC). This advanced materials technology complements the Group's organic development of NanoImprint Lithography ("NIL"), and broadens the potential application of NIL beyond IQE's current focus on advanced DFB lasers. Indeed, the patents acquired have applications in Optical components including VCSEL and edge emitting lasers,modulators, silicon photonics, fibre optic systems, micro LED displays, image sensors including Diffractive Optical Elements (DOE) and biosensors.
The cREO and QPC patents were acquired for peanuts -relative to their earnings potential-$5million and $500,000 respectively. Very interestingly the QPC patents were independently valued at $60million 3 years ago! So how did IQE get these patents so cheaply, the QPC in particular, well Silex( cREO) and Luxtaltek ( QPC) had no route to monetise their patents, they were literally stuck with great IP but no way to use it - a bit like being given £1million for a shopping spree for 4 hours when all the shops are closed- it’s worthless ;-). They were both prepared to literally give it away for a royalty stream down the line when IQE had ‘enabled’ and ‘monetised’their technology.
just think about this potential scenario, it’s possible. CMOS is a huge growth area ( Compound Semiconductor material on silicon) but its complex and difficult because the 2 materials basically don’t like being combined-a specifically designed ‘layer’ of cREO between the two, solves the issue. Now consider IQE Licensing this patented technology to someone like ....Intel, for a licence fee and a royalty revenue stream, mmmmm gets interesting doesn’t it, and the absolute beauty is that there can be no patent infringement by all licensee or competitors, all you have to do is snap a wafer in half, demonstrate the cREO layer and bobs your uncle, there’s the infringement , no costly patent infringement costs ;-).
after yesterday I think there are multiple opportunities with cREO, NIL and fascinatingly with QPC to generate a very meaningful revenue.

Behind the scenes IQE have and are, actively engaging with institutional investors, recently they attended investor roadshows in New York, Boston and San Francisco, the CEO is visiting a major US investor in 2 weeks at the investors request. It’s interesting that institutions that participated in the recent offering are telling IQE that they are picking up shares from PI’s as the SP has reduced. IQE are intent on increasing the % of institutions and are finding the USA investors much more tech savvy.
It’s interesting that in previous years the Chairman has expressly rejected an imminent move to the ‘ main market’, that attitude has softened and from discussions yesterday I think that move will occur in 2019, indeed without Phil’s tragic death I think it may indeed have been announced this year? This will be done with the single aim ( excuse the pun) of increasing institutional interest. So there is indeed a huge amount of activity going on , but they aren’t communicating that.

That brings us to IR and PR. I think I, in a direct comment to Drew Nelson mid presentation, and also many other investors in one on one’s, made it clear that IQE simply has to do this better. We understand the restrictions imposed by NDA’s BUT there are always ways and means of improving news-flow,without infringing confidentiality. As a simple example I stated that the ‘events page’ on the IQE web-site contained NO onward events, this simply can’t be true- just adding details of investor roadshows, presentation that ARE occurring , would be positive, there are many more examples, that don’t involve issuing an RNS ,the KEY thing is that they got the message, certainly the incoming Chairman and all the board did, I actually expect some changes, we shall see. It’s irritating me already that the AGM presentation is not up on the web-site, that’s a small but glaring and consistent error that’s totally unacceptable!What is obvious, is that the fluctuations in SP is being largely and almost entirely driven by us - PI’s. The key engagements with institutional investors are taking place all the time and they seem intent on adding Whilst PI’s subtract and trade ( simplistic but probably true).Obviously shorter’s have an effect, but frankly I think it’s overstated.

The future market for VCSELS is indeed huge, however,the CEO was at pains to point out that our VCSEL revenue at present is almost entirely from 1 smartphone, of course that will change soon. I asked the question about VCSELS v EE ( edge emitting) lasers , as it seems some of the Android smartphones will have EE’s, in short, IQE confirm that they produce BOTH , but interestingly the CEO restated that VCSELS are the far better option and that he believed ( he should know) that in fact the majority of the Asian handset companies WILL be using VCSELS ,which will no doubt be more profitable for us.

Of course the massive markets for VCSELS come not only from wireless applications but from 2020 onwards from industrial and automotive applications. The autonomous car with its LIDAR systems has a huge demand in VCSELS - the MOST amazing fact learned at yesterday’s AGM is that, the the VCSEL constituent of a 2020 car could be so large that ONE SINGLE VCSEL WAFER would be needed to supply ONLY 16 cars! WOW , that’s perhaps why the new Newport factory has space for 100reactors , a 6inch VCSEL wafer probably costs £8000 quid now ( obviously will come down as volume production occurs)and can probably be used to make a few thousand phones , but only 16 vehicles- go work out the revenues.The CEO was again at pains to explain clearly why IQE’s VCSELS are the best, you either believe him or you don’t, I don’t care, the proof is in the pudding- the CUSTOMERS do ( read the RNS).He once again gave a detailed believable explanation of why this is the case.

Hammerd and others bought up the issue of the number of new reactors that have been placed and are on order. Hammerd , and others are unhappy that with the obvious future demand and the 6-12 month acquisition/ fitting/ validating time, should mean that more reactors should be on order.The CEO could not be shifted from IQE’s position of prudent acquisition to ensure full capacity as and when it is needed, rather than before, remember their customers and the market WILL be informing them,rather than spending now and the machines potentially sitting idle. It seems sensible to me , 2018 and 2019 will see a surge in demand but it looks like those extra 10-15 reactors in addition to existing infrastructure will probably suffice. The massive demand looks likely to come late 2019/2020onwards where if everything goes according to predictions it looks like that factory will be filling up, in the short to medium term VCSEL demand will be very large but dependent on Apple and on the Android camp getting its act in order. Having 10 redundant reactors , with 30people sitting on their ars$s doing nothing would not be good business?

I bought up the issue of the 2017 tax charge with the chairman, IQE in its 2017 RNS expresses disappointment with their previous professional advisors and indicated that they would be seeking recompense, no mention has been made since, hence my query. Obviously IQE can’t claim back the tax that was owed, what they can do is pursue the advisors for costs, interest and ‘harm’ done to reputation. Obviously any litigation is costly, sensitive and difficult as one of the advisors has been acquired, but Dr Ainsworth reassured me, that this matter is still very much on his radar and is being actively pursued.

As always, I like to look directors ‘in the eye’ and assess body language and tone, nothing that I saw yesterday persuades me other than we have a board of high integrity. All the board are determined that Phil’s legacy will be remembered and the foundations , mentoring and planning he helped institute will result in great rewards for its shareholders.On the corporate side We obviously need that new non-exec, that’s a given,but after hosting the delightful DPMeyer at our barn the night before( another boozy one), I am persuaded by him,( he himself is a non-exec Chairman) that we may need, especially if we move to the FTSE another senior board position, something to think about?

I didn’t go on the tour, I have seen the existing facilities and the new site externally many times, sheer numbers of investors prevented an internal tour, a pity as I was looking forward to that, that will hopefully be remedied sometime in July, I shall report back.

This is my 5th IQE AGM report,it’s instructive and important for me to state that at each meeting I have come away positively ( easier yesterday than when the SP was 17p!). Plans and aspirations set out 5 years ago have largely come true, opportunities are being converted to solid business and revenue generation,markets are opening up, and 5G awaits, acquisitions have largely been successful. With an unrivalled breadth of a technology portfolio and a route to a license and royalty stream, enabled by a vast array of patents, I am confident about the future, the key is, so is the board. :-)I can live with with the frustrating SP gyrations , but I would be incredulous if the SP is not significantly higher during 2018.....but I would say that.Nothing is certain.

I was disappointed that Apple didn’t introduce a new 3D sensing iPad Pro yesterday and would be disappointed if the Android camp don’t get a meaningful volume of high end 3D sensing/ facial recognition smartphones on the market in early 2019 ( hopefully at least a few for Xmas season), there are many imponderables, but as long as you don’t ‘bet’ what you can’t afford to lose you will be safe. My holding is definitely ‘locked away’

That’s me for the day, where is the aspirin ;-), one thing IS certain in life,attending AGM’s and the after event food and drinkies with Hammerd, should carry a government health warning ⚠️ :-)

Lovely to meet so many of you yesterday
Dave

Very positive RNS today. Price up. N1 Singer reiterates positive stance. AGM and site visit today

I've enjoyed watching IQE (LON:IQE) on the sidelines for the last few months as it has been a great battle between the bulls and bears (lots of volatility and whipsaw action back and forth). I can't say I'd be enjoying it as much if I were a holder! Looking at the technicals I'd say that the bears have it at the moment (below the 200 MA, ~28% off the 52 week high). Interesting to see how it pans out.

Apple seems to be unsettling its supply chain. Intel down 7% last time I looked.

Problems for IQE (LON:IQE) ?

Phil

Edison released a brief IQE-sponsored research update yesterday http://www.edisoninvestmentresearch.com/research/report/iqe188023/full
They seem to conclude that current 127p SP is fair value relative to peer group, based on known products and 40% annual revenue growth in photonics to Dec 2019. EPS estimates are close to consensus figures on Stockopedia.

"from which time a fully utilised tool making VCSELs has a payback of c. 1 year."

How does Moore's law affect this? Genuine question, I presume the capability of these products doubles every 18 months, is the kit they're installing capable of keeping pace with the advance or do they constantly have to buy more capable manufacturing kit?

If you can pay back in a year then have 10 years only paying opex with extremely high margins, then awesome, but I have a sneaky feeling the returns are going to drop off a cliff after two "Moore's Law" cycles (i.e. 3 years - 1 year being lost in lead time and another lost in pay back) and they'll have to run to stand still..

Edit - No position. Just want to understand a bit more about their product.

My last post on IQE (LON:IQE) - posted on Paul Scott's SCVR, 20th March 2018 (- there's a long discussion there on IQE):

I was going to let the subject of IQE (LON:IQE) lie, but I've spent a bit of time on this now and before I do I am aware I've made encouraging statements on the long-term potential of photonics (in relation to a broad industry that will eventually replace micro-electronics, rather than the narrower impending applications IQE (LON:IQE) has in mind, such as for 3D sensors for smartphone face recognition) that could give a distorted view of the risk and only state the upside. So I wanted to point out a few things about IQE (LON:IQE) (I have no position):

IQE (LON:IQE) was founded in 1988 (and floated in 1999). It's entire history has coincided with an almost unimaginable boom in micro-electronics. In the meantime it has been buying up other companies and other people's intellectual property, so it bloody well should be the global leader in its field that it says it is (and which I don't question). Like any commercial business, IQE (LON:IQE) is first and foremost in business to make money, only IQE (LON:IQE) hasn't been very good at it. After all this time, and many, many, innovations and opportunities in the industry it STILL. IS. NOT. MAKING. DECENT. MONEY. Meanwhile, the chipset designers got minted and became household names, but I am yet to buy a computer that tells me it has "IQE Inside" - not one of the computer companies think there is added-value and a brand advantage to be gained by explaining that the substrates for their integrated circuits have been lovingly made by IQE. Nor does IQE (LON:IQE) seem much to need making a good profit since their directors are happy to fill their own pockets ahead of company coffers and to get rich on share options and a hyped share price.

At this stage, I think I would sooner buy a producer of bulk commodity plastics, so long as it was run by competent and honest management. At least its business would be easier to understand, its position in the market easier to establish independently and less at risk of sudden disruptive displacement. Nor would such a business make a pretence of doing anything other than supplying a commodity item. My advice to anyone on IQE (LON:IQE) that wants it given it's fairly long-established track record: make sure the profits are real and sizeable before you invest.

It seems to me that IQE's short-term profits are being held back by its capital investments to support rapid growth in demand for its epiwafer products in various sectors. The following extract from IQE's results announcement today is relevant to this:

"Capacity expansion

In November 2017, IQE announced the placing of 67.9 million new ordinary shares, raising gross proceeds of approximately £95 million. The fund raise was primarily to finance a capacity expansion programme to deliver the scale needed to capture multiple high growth market opportunities. Of immediate significance is the ramp in demand for VCSELs. In addition, the fund raising is enabling the acceleration of product development.

At the heart of the capacity expansion is the creation of a new foundry in Newport, South Wales. This 'Mega Foundry' will house up to 100 tools, creating a facility with unparalleled capacity and economies of scale in the industry. The first 5 tools are now in-situ and on track for production in H2 2018, a further 5 tools are scheduled for delivery in Q3. Preparation is underway to call off a further 10 tools within the next 12-18 months.

The establishment of the new foundry is being supported by the Cardiff City Region City Deal, which is funding the construction of the infrastructure. IQE is leasing the building under an 11 year lease, which has a 3 year rent free period and an option to purchase. This support has enabled IQE to focus its own investment on adding new tools, which requires upfront investment in both opex and capex. The lead time to get new tools into production is approximately 9-12 months, from which time a fully utilised tool making VCSELs has a payback of c. 1 year."


In my opinion, that very short payback time represents an excellent return on IQE's capital investments in new tools.

The biggest takeaway is the CAGR for Photonics at 40-60% over the next 5 years. That is huge, but it is also a bit jam tomorrow. There are lots of references to keeping the market updated on new developments which could increase business. I don't know whether the implication is that IQE is attempting to move to a model of more proactively communicating with the market. The current long periods of silence have been meat to shorters. I suspect it will end blue today though am cross the analysts briefing is not being webcast. That is poor.

IQE (LON:IQE) Final Results this morning.

https://www.investegate.co.uk/iqe-plc--iqe-/gnw/iqe-plc---final-results/20180320070007H7485/

Profit at £24m seems to be more or less exactly as broker consensus. Don’t appear to be any restatements or caveats from the auditors - the angle for the recent short attack - but lots of text to read through. Likewise lots of Delphic comments on the various outlook sections (to the point of verbosity for some!) Something for both bulls and bears; interesting to see how the market reacts, especially after the tech stocks sell off in the US yesterday.

Gus.

This explains what cReo is. My summary is it’s a potential way to make compound semiconductors more cheaply on silicon wafers.

http://www.iqep.com/markets/cmos/creo/

This looks like positive news.

http://www.silex.com.au/Silex/media/Corporate-Governance/17-SLX-IQE-Option-Exercise-160318-final.pdf?ext=.pdf.ToString().Replace(%22~%22,%22%22)

Tuesday release of 2017 figures will be interesting.

Seems Minervini is turning bullish: "This week we added more names to our Buy Alert list than we have in a very long time - we are finding many stocks in bases and an increasing number of actionable ideas - this is a bullish sign"

According to this press release, IQE will be presenting its results for the 2017 calendar year to analysts on 20 March at the Rothschild Sky Pavilion:

https://polaris.brighterir.com/public/iqe/news/rns/story/xep5vzw

I assume that's a prestigious and expensive venue. If IQE's management has decided to hire it for the analysts' presentation, does that suggest the results are likely to be good?

For anyone looking for a Minervini inspired, entry point, it looks to me like a current "low cheat" entry at just above 134p. It's not quite hitting his trend template, but there is no doubt IQE is in a long term uptrend IMHO.

I've got too many of these already, so I won't be buying any more.

M.

Today 21:30 .
https://www.bloomberg.com/news/articles/2018-02-26/apple-is-said-to-plan-giant-high-end-iphone-lower-priced-model

Apple Plans Giant High-End iPhone, Lower-Priced Model

Company aims to boost sales after iPhone X missed expectations
All models to have facial recognition, edge-to-edge screens.

This should help sales

I think the price action of IQE over the last four months shows it has done pretty much the opposite of the wider market, falling during Nov-mid Jan and rising since. While Minervini would always say the best risk adjusted returns are made by investing in qualifying stocks during a period where the market is a tailwind, I think shares on the UK market are less liquid and more open to manipulation than in the US, and so opportunities like IQE do arise, where the decline in the SP seemed largely down to frothy holders, concerted shorting and results announcements light on detail. Another opportunity is in my view opening at BUR (and presumably others) where I think the price is being depressed due to fund managers (Woodford and Barnett) needing liquidity to meet redemptions. If you can buy during dips which have nothing to do with the underlying business, you can do very well.

Interesting RNS today. May put the cat amongst the shorters.

This is what Mark Minnervini tweeted yesterday. He has been 100% cash for a few weeks I think.

Mark Minervini  @markminervini
22h22 hours ago
More
As long as the 10-year doesn't soar above 3% and inflation gauges don't spike, I think the next leg down (if we get more downside from here) may put in the bottom. Then it will take some time to base-build. But, as of now, I'm still in 100% cash!

Personally I have been 80% cash since the start of the year, and went 100% cash on Monday last.

I think there will be a lot more blood in the street before it is safe to start buying again.  All in my opinion.

I am off to France for 2 weeks  - will only look occasionally at how the market is doing.

"Cardiff University defends joint venture with Apple supplier IQE":

https://uk.reuters.com/article/uk-cardiff-iqe/cardiff-university-defends-joint-venture-with-apple-supplier-iqe-idUKKBN1FT2PK

It seems that the manufacturers of chips for the VCSEL arrays used by Apple's smartphones for face id will have to buy many more of IQE's VCSEL wafers this year and in future years:

http://www.patentlyapple.com/patently-apple/2018/02/a-supply-chain-report-confirms-apple-to-extend-face-id-to-three-smartphones-this-year.html

So recent speculation about whether sales of the iPhone X have been as good as Apple had hoped is irrelevant as far as the market for IQE's VCSEL wafers is concerned.

Hi all 

i have no position in IQE, however it is evident that it is very well followed by stocko subscribers stock. I have CC this piece from share profits apologies if already common knowledge. i also have the full report if anyone wants a copy message me your email address. (Don't think i can attach to post?)

FYIO 

Legendary US bear raiding outfit Muddy Waters has announced that it is short of IQE (IQE). It dismisses Matt Earl's Shadowfall dossier of last week as only partially getting there and has published its own devastating report slating IQE as an "egregious accounting manipulator". Don't mess with Muddy Waters, anyone out there still owning this stock should sell NOW!. Muddy notes:

Muddy Waters Capital LLC (“Muddy Waters”) is an investment advisor to private funds. Muddy Waters has analyzed the U.K.-listed company IQE plc (“IQE”) and is hereby publishing the outcome and the conclusions of our analysis, which is based on publicly available information. Funds Muddy Waters manages are short shares of IQE and for this reason there might be a conflict of interest.

Muddy Waters is Short IQE plc (AIM: IQE LN)

Muddy Waters Capital LLC is short IQE. IQE is, in our opinion, an egregious accounting manipulator. We adjust downward the company’s reported net income for 2015 and 2016, respectively, by 58.5% and 25.4%. We believe it is reasonable to adjust 1H 2017 net income down by approximately £5 million or 69% to account for likely aggressive capitalization of expenses.

The 2015 and 2016 adjustments reflect our belief that IQE’s transactions with CSC are not substantive, and the accounting is possibly designed to deceive investors. We estimate that when IQE booked gains on transferring PP&E to CSC, it transferred the PP&E at a valuation 4.6x carrying value. This markup strains credulity. We call upon IQE to release the purportedly independent valuation report in full, and we will publicly opine on it (even if it convincingly supports the valuation). IQE was CSC’s only customer through 2016, and CSC generated an abysmal negative -105.9% gross margin! (It is almost amazing anyone would claim that it “holds itself to the highest standards of corporate governance, transparency, and integrity” with a straight face under these circumstances.)

We identify five previously unknown issues with the accounting for transactions between IQE and CSC. Time and again, IQE seems to be employing “having one’s cake and eating it too” accounting. We feel that IQE dominates CSC, and CSC is therefore likely an alter ego for IQE.

We believe IQE began aggressively capitalizing expenses in 1H 2017. CSC’s funds were largely exhausted by the end of 2016, and we suspect IQE was desperate for some more earnings magic. We note that insiders, who presciently purchased a substantial number of shares just before the JVs’ accounting benefits began flowing to IQE, sold millions of pounds of stock around the end of 1H 2017. These sales could be a sign that IQE’s ability to generate profits has hit the wall as the result of the exhaustion of its financial engineering options.

On February 2nd, a firm called ShadowFall circulated a report criticizing IQE’s accounting for two joint ventures. IQE responded on February 5th, calling the contents of the report “without merit” and “misleading”. Our research has been independent of ShadowFall, ShadowFall’s report does not address the vast majority of the issues with IQE’s accounts we have identified.

best regards J 

One thing the shorters have achieved is to drive IQE's share price down to a more attractive level for purchases by investors with a long-term view.

Personally I think the company's business prospects are superb and the recent shorters' allegations are without foundation. The only issue I have with buying more IQE shares than I currently own is the very high volatility of its share price.

So:-

House broker giving a positive spin = OK.

Third party publishing a bear case = bad.

Everyone has a stake in what they do - there's no difference on that basis to the above.

Playing devils advocate.

Phil

My concern with the “reports” coming from the hedge funds is that they are perceived as being valuable research and given currency by some/many investors accordingly. If someone with a uniform on shouts “fire” in a crowded building, especially one full of already nervous people, panic ensues. We’ve seen some of that with IQE (LON:IQE) today.

We seem to be in a position where compliance rules on brokers etc., preclude them from making statements without jumping through various hoops notionally designed to protect investors. Overseas hedge funds don’t seem to be covered by such rules - yet their opinions are relied upon by many investors (no smoke without fire etc.) notwithstanding their self interest in stirring up a panic. If a broker took on a large short position in a share and then issued a hostile research note this would fall foul of various regulations (front running etc.) and they’d be caned accordingly. Probably more fool us investors for swallowing the shorters ‘ line but I agree it doesn’t seem particularly ethical behaviour nor a very effective way of maintaining an orderly market.

Gus.

And yet the reports are published at the time the shorters start closing their positions? So while it is true that the share price was overvalued, those who are publishing the current documentation appear to have taken short positions long ago and are trying to negatively affect the market in order to buy shares. That is my objection here.
I'm all for shorters exposing companies which are not viable. I am uncomfortable with people publishing information, apparently in concert, so they can do the opposite of what that information suggests.

If I was a regulated business which had spent millions ensuring compliance with Mifid 2 I would be looking at the actions of Shadowfall and Muddy Waters and wondering whether I was operating on a level playing field.

This share was hyped up to levels it should not have been at - it was seriously undervalued over a year ago but then hit unsustainable highs.

The shorters are now bringing back to the levels it should be.

In the intervening period IQE (LON:IQE) raised enough money to pay off its debt, get the funding to expand its production and potentially become, in actuality, the success the bulls want it to be. The market has therefore worked as it should do - so I feel that a lot of the above is sour grapes.

That is the market working as it should - not in my view people "manipulating" the market.

Phil

Well to be honest my feeling here is that these reports are pure market manipulation, coinciding, as they appear to have done according to the reported stats, with shorts closing their position. I have no problem with research, which I think should be freely available. I do have a problem with financial institutions taking a position, long or short, then writing a paper to pump or trash a share, and then using the resultant share price action as an opportunity to close out their position.
The position with Globo, Quindell etc was different, as they were companies which had no business model and which were always going to fail. With IQE, this paper is simply a smokescreen to allow existing shorts to close, and I think that is wrong.

IQE has issued an RNS in response to today's short report by Muddy Waters:

https://polaris.brighterir.com/public/iqe/news/rns/story/rmy0y9r

It is not about having an opinion, which I am fine with. It is about an investment company being able to take a position in a company and then attempt to either pump or trash that company's share price. Brokers have strict rules preventing their staff investing in the companies they cover. I am uncomfortable with funds writing long pieces on their investments and publishing them, at a time of their choosing, with a view to causing the share price of the company in question to move. For all we know, MW could have closed their short this afternoon. Imagine if the big fund houses were to issue 10 page notes on companies, without telling us whether they hold shares in the company or not and/or when they change their position. In a post Mifid climate it just seems odd that this is permitted.

it does seem bizarre that in a world of Mifid II limiting what research is available to the public, any hedge fund or shorter can take a short position, draft a paper attacking the accounting practices of a business, publish it without warning to the market or notice to the company, and profit by doing so. It just seems, on a fundamental level, wrong. I know people can say that it is the same as a house broker publishing a bullish report or investors on bulletin boards writing positive stuff, but it feels like an unequal field exists here.

The shorters are selling IQE stock that has been borrowed from institutions for a fee, but that stock will have to be returned to the institutions at some time, when the shorters will have to buy back the stock on the market. The recent placing at 140 pence of IQE stock with institutions has raised enough money to wipe out IQE's debt if it wished to do that, although most of it has been earmarked for future capital expenditure on new reactors. In view of that, together with the rapidly expanding market for IQE's wafers to a variety of chip manufacturer clients for a variety of applications, I think there is almost no chance of IQE going out of business in the near future. Perhaps another reason why some institutions have lent some of their stock to shorters is because the institutions like IQE's long-term prospects and would like to buy more of IQE stock, but would not be unhappy if the price they will have to pay in the market for that stock has been reduced by the activities of shorters.

the quality of the Muddy Waters report is beyond poor, I think. It is badly written, badly strung together and has all the hallmarks of a desperation report quickly knocked up because the original Shadowfall report did not have the desired effect. I don't hold any IQE but the ongoing issue of reports strikes me as an act of desperation.

It reminds me of that quote when Einstein was asked his views on a defamatory publication titled '100 Scientists Against Einstein' to which AE answered, why 100? if they were correct it would take only one. :D

So that's another research piece that IQE should have to RNS reply to - it's not a great look this to be honest.

If anyone is interested in reading today's short report on IQE by Muddy Waters it can be downloaded from here:

http://d.muddywatersresearch.com/content/uploads/2018/02/MW_IQE_02082018.pdf

In the interests of balance, here's a link to another very bullish post on IQE's prospect by Dave Sweeney on iii:

http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn:IQE.L&it=le&action=detail&id=12268747

Just in case anyone had looked away, IQE (LON:IQE) share price is all over the place today. Touched 92p at one point, off more than 17%. Currently back up to to about 97p (fall of about 13%). Only news I can see is another shorter, Muddy Waters, has been disclosed. Not quite sure what the “Hoochie, Coochie man” has to do with it but markets don’t seem too happy. Likewise, not entirely sure this is what Mr Minervini was predicting either .....

Gus.

If anyone would like to see the relevant Muddy Water’s “research” piece, here is the link (via a disclaimer)...

http://d.muddywatersresearch.com/tou/?redirect=/content/uploads/2018/02/MW_IQE_02082018.pdf

Macom, another of IQE's customers, has also just reported its latest quarterly results. Here is another post on iii by Dave Sweeney with his interpretation of Macom's conference call, particularly with regards to the future prospects for IQE's GAN on Silicon wafers:

http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn:IQE.L&it=le&action=detail&id=12268240

IQE's share price was up 5.5% today, in spite of the FTSE All Share Index being down 2.5% and the release last Friday of a shorter's document.

This may have been due to some very good quarterly results reported yesterday by some of IQE's chip manufacturer clients, which have been interpreted by these posts on iii by Dave Sweeney:

http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn:IQE.L&it=le&action=detail&id=12267597

http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn:IQE.L&it=le&action=detail&id=12267741

http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn:IQE.L&it=le&action=detail&id=12267958

The Verge: Exclusive - Intel's new smart glasses hands-on

This article gives an early look at an upcoming product from Intel's augmented reality (AR) unit. The 'normal' looking glasses allow a user to see text and other information in an unobtrusive way. A low-powered VCSEL is used for the retinal projection.

Like many of Intel's innovations, it remains to be seen whether the product ever makes it to market, but it's an interesting demonstration of another potential use of VCSELs.

There's also a video here.

Thanks Bestace. Fantastic piece of investigation. I am long but now only hold 25% of my former holding having followed Paul out with the rest at about 170p.

Aphrodites on ADVFN has posted at 07:36 today (5/2/2018) a copy of an interesting Barclays note entitled "IQE plc Neither news nor merit in ShadowFall report, reiterate Overweight Stock Rating/Industry View: Overweight/Neutral Price Target: GBP 2.10"

the shorters may get lucky with a wider market sell off, but given that the shadowfall report was written in December, why publicise it more widely on Friday? And given most of the copy for Sunday papers is written well in advance, when were the Sunday Times tipped off? It all looks to me like it was a co-ordinated last throw of the dice to drive the price down and allow the shorters to buy back in. According to the RNS this morning, photonics managed triple digit growth last year and that is continuing. PE is dropping fast as revenues increase and I struggle to see IQE as anything other than cheap, fast growing and profitable in a business which is growing exponentially and where major barriers to entry exist.

IQE management seemed to have done a fantastic job with their response. The sp is actually up when the general market wobble is pulling share prices down.

Formal RNS rebuttal of ShadowFall “short” report issued by IQE (LON:IQE) this morning.

https://www.investegate.co.uk/iqe-plc--iqe-/gnw/iqe-plc---response-to-shadowfall-report/20180205070022H5921/

Gus.

Fantastic post bestace - I’d like to echo the words of others here and thank you for this post. I am holder and thoroughly researched the company and it’s prospects before taking a position. I don’t however have great ability when it comes to accounting so reading the shadowfall did massively concern me to the point where I was considering getting out first thing tomorrow on the basis of sell now and ask questions later. It seems to me now that perhaps this report has been carefully distributed at a pre-meditated time to cause fear and anxiety for pi’s who don’t have he technical accounting knowledge to challenge the claims. Your post has greatly helped ease
my concerns as I’m sure it has many other pi’s. I hope and expect the board to issue an official RNS tomorrow morning with their own rebuttal and if proven that everything is above board then my suspicion is that the shorters may have a serious problem on there hands trying to cover. That is my hope anyway!

This is not me talking but my partner simply said the shorts are trying to give themselves space to get out at a good price. If the results in March with update are good - how easy is it to cover so many shares? Therefore push the price down so you can cover more easily and make more profit.

Bestace. Thank you for covering this so well. I looked at these jv's carefully in the accounts when published and was not concerned by them. This I did before buying - I am long.

Alternative view

There has been a massive negative campaign against IQE

1. Publicity on the percentage of shorters
2. Shortfall Fund negative report
3. Investors Chronicle negative report
4. Negative reports in many national newspapers

Yet, with all this negativity IQE is still holding above £1 having bounced of that level 2 or 3 times, a positive technical sign. Isn't there a case to buy when negative sentiment is at its highest. Also, are the shorts trying to ramp up the pressure due to increased concerns regarding IQE not having dropped as much as they would have hoped and if it turns a short squeeze could see a rapid reversal.

As you can guess I'm currently long but Monday could be very interesting.

I’ve not looked at the Singapore situation as I don’t have those JV accounts to hand, nor am I attempting a complete refutation of the report, but having read it I would make some specific observations.

Apologies for the length of this, I have a rather geeky fascination with bear reports like this!

As always, DYOR etc., I can't confirm there are no errors in what follows.

1. The joint venture's contribution to IQE's cash flow

In 2015, IQE group companies appear to have benefited from £7.7 million in net cash flows from the CSC JV to IQE group companies. In 2016, the net cash flows from the CSC JV to IQE group companies appears to be £7.0 million.

Their calculations behind these numbers seems to be as follows:

That’s fine as far as it goes, but it’s only a partial analysis and it certainly doesn’t reflect the total impact of the JV on IQE’s cash flow.

It ignores the opening debtor and creditor balances, as well as the other reported transactions between the two entities, namely the sales by the JV to IQE, other amounts recharged by the JV to IQE (and vice versa), the plant and machinery sold by the JV to IQE and the loan and interest payable thereon.

Add those additional elements in and by my reckoning the impact on IQE’s free cash flow is as follows [table edited to correct an error]:

So across the two years the impact of transactions between the JV and IQE was to increase IQE’s net cash flow by £9.1m, some distance short of Shadowfall’s £14.7m figure.

That impact is still sufficient to turn IQE’s reported free cash flow in 2017 (of £2.6m) negative, but only just.

2. Transfer of assets from IQE to CSC Ltd

“In establishing the CSC JV, IQE is reported to have contributed equipment with a market value of £12 million... The equipment that IQE contributed to the CSC JV appears to have been marked up in value from its net book value (NBV) by a factor of c. 4.7x the NBV previously held by IQE subsidiaries.

 …we find it somewhat unorthodox that the group transfers assets, seemingly with a net book value of less than £3 million, which are marked up in value, resulting in a gain on disposal for IQE of nearly £5 million.”

The implication seems to be that the increase in transfer value is part of a pattern of puffing up IQE’s profits by using the JV as an off balance sheet vehicle.

I think that interpretation is false. Accounting standards require fixed assets to be valued at cost less any provision for impairment (cost less net realisable value, in old terminology).

Companies can’t bump up the value of fixed assets in their books just because their value in use is greater than their cost. You could quibble that IQE’s depreciation policies were overly conservative if the equipment’s value in use was so much higher than the accounting net book value, but that is hardly something to get worked up about.

In this instance, the fair value of the equipment based on its commercial use has been assessed at £12m (it is perhaps worth stressing that the equipment was independently valued), so it seems reasonable to me for that value to be used when the equipment was transferred to the joint venture, resulting in an accounting gain for IQE.

If they had transferred the equipment at the lower net book value figure, IQE would have been effectively contributing more to the JV than their 50% equity share merited, which would have been a breach of their fiduciary duty to IQE shareholders, if nothing else.

So Shadowfall may find that transaction ‘unorthodox’, but in my view it's simply a mundane application of accounting rules and commercial common sense.

3. IQE’s investment in the CSC JV appears to be swiftly and largely written off

 IQE received £8 million in preference shares in CSC and £12 million in cash inlieu of this IP transfer. However, subsequent to this receipt it appears that the value of the preference shares and its other equity interest was almost immediately impaired.

As far as I can tell, Shadowfall are conflating preference shares and ordinary shares here.

They are correct that IQE sold £20m of IP to the JV in exchange for £8m preference shares and £12m cash, but contrary to what Shadowfall claim, the £8m preference shares have not been written off by IQE. Look at the FY16 group accounts and they are shown as ‘Financial Assets’ within ‘non-current assets’:

Further details are provided in note 15:

Note in particular that last comment about the carrying value (i.e. the £8m figure) representing the estimated fair value.

So when Shadowfall refer to write offs, they appear to be referring to the ordinary shares held by the IQE subsidiaries in the JV. These have nothing to do with the payment for the £20m of IP, but are instead a simple application of the ‘equity method’ of accounting for joint ventures, as required by the accounting standards.

This is mentioned in the accounts of the IQE subsidiaries, from which Shadowfall have quoted extracts in relation to the impairments, but they seem to have missed these additional disclosures, e.g. in the accounts of IQE (Europe) Ltd:

The reference there to ‘the group accounting treatment’ simply means the ‘equity method’ of accounting for joint ventures, as explained in more detail in the IQE group accounting policies note:

So the combination of the losses incurred by the JVs and the unrealised gains on transactions between IQE and the JVs gives rise to the write off, as required by the accounting standards. This is quantified in note 27 of the group accounts:

4. ...whereas Cardiff University have not impaired their investment in the joint venture

While IQE appears to have impaired a significant portion of its investment in CSC, by contrast, the JV partner, Cardiff University, continues to carry its investment at full value

That is not correct. Take a look at Cardiff University's accounts and it is clear they also apply the equity method of accounting, and are taking their share of the JV’s losses as an impairment:

The reason Cardiff University have not impaired their investment down to zero value is because they do not have the unrealised gains of £12m that IQE do, which are required to eliminated in the group accounts.

5. the joint venture's lack of customers other than IQE

it is not altogether clear that these JVs have any other customers. It is a somewhat circular state of affairs.

That is true looking backwards only at the 2015 and 2016 accounts, but we are now 13 months past that point and to claim that the JVs have no customers other than IQE is to ignore any progress made since 31 December 2016, and to ignore the narrative on progress actually reported in the 2016 accounts.

 A cursory look at the CSC website shows plenty of newsflow since that date with announcements of partnerships and collaborations giving rise to revenues from parties other than IQE.

6. Globo

The invocation of Globo implies that IQE are doing the same thing as them, i.e. manufacturing revenues and profits at the group level and parking the corresponding losses and costs in the JVs. However I think that is jumping to conclusions where the available evidence does not provide confirmatory proof. 

Shadowfall describe the Globo case as a ‘Pig and Pork scheme’ whereby transactions between two entities are “apparently at arm’s length when in fact there is an undisclosed or unclear common ownership of both companies.”

However relationships between IQE and their joint ventures are neither unclear nor undisclosed. There is plenty of disclosure out there for anyone who cares to look.

Furthermore, the joint venture partners in the Globo case were the directors themselves, which represented a clear conflict of interest where the directors had an incentive to accept losses and costs in the off balance sheet vehicle as a means of bumping up revenues and profits in the main company.

That is not so in the case of IQE, where the joint venture parties are Cardiff University in the UK and WIN Semiconductors and Nangyang University in Singapore. I cannot think of any plausible incentives or reasons why those parties would be happy to consort in inflating profits at IQE at a cost to themselves.

7. Loss making in the joint ventures

The CSC accounts for 2016 say this about their losses:

Taking that at face value, after the initial 3-year start up plan (which ends in FY17), the JV should be profitable in its own right, which if that transpires as planned, rather undercuts the argument that it exists merely as a means of puffing up IQE’s profits and cashflows.

It doesn't seem unreasonable that a start up business would be loss-making in its first 3 years of existence, and that narrative is consistent with IQE's messaging in the group accounts:

“Initiatives include... the Compound Semiconductor Centre, the unique joint venture between IQE and Cardiff University to establish a prototyping and commercialisation facility for compound semiconductor materials technologies. It is expected that the fruits of the initiatives announced during 2015 and 2016 will begin to be realised during 2017 and 2018”

I understand from the advfn thread that the report was passed to certain parties on the 8th December. So this has been possibly used by short sellers and has been seen in the professional part of the industry..

I feel the report is just one opinion, looking only at the accounts and not taking into account what the company has said. Many of these agreements within these joint ventures are private, we are therefore unable to judge whether this has any substance or not. I am sure that bearing in mind that both the Welsh government and Cardiff University are heavily involved with the company, everything will need to be above board.

I sadly feel that the share will take a good while to recover from this, but we do know that the company has stated that they have signed multi year contracts and are investing heavily to meet the demands of these. Hence the recent institutional fund raise.

Apparently there's a piece in the Sunday Times and a further note from TW:

https://www.shareprophets.com/views/34148/iqe-how-this-plays-out-monday-morning-a-heartfelt-apology-from-me

I'd be surprised if IQE don't respond via RNS tomorrow - could be interesting share price movements tomorrow.

As I understand it this report by ShadowFall/Matt Earl emerged on Friday. Were shorting funds such as Marshall Wace aware of its existence/contents at a much earlier date?

It's also worth paying attention to Matt Earl's previous musings :

https://www.shareprophets.com/index.php?q=matt+earl&s=search

From the quick look through I noted an extremely strong track record in getting shorts pretty right over time.

I have reviewed the ShadowFall report and a lot of it goes over my head. But the fact that remains in my mind is the use of JVs to flatter the IQE group accounts.
Matt Earl is good at his job and he has a successful history of exposing dubious company practices and frauds. The Sunday Times today carries no less than 3 separate articles on this subject.
IQE is in for a rough time over the next few weeks. Senior managers should be busy taking a refresher course in crisis management.
Personally I did well trading this stock last year. From November 2017, the sp chart distinctly started to turn south (breaching both 50 and 100 moving averages) and I stopped trading. If there is one lesson I learned last year is to listen and pay more attention to what the market is telling you.

From looking back at Stifel reports, the valuation of IQE (LON:IQE) is based on predicted profits in 2019/2020, not applying multiples to historic profits. The appalling free cash-flow to date is a function of investment to get them into a strong position in chosen markets. If competition or demand changes the assumed volumes or margins into 2020 then the valuation by Stifel (circa 160ps) will look very rich. I see the current debate as noise which will damage share price for next few months while it all plays out. Shame really, as they do seem to be in exciting markets which can drive long term profitability. I have a very small long position but will not invest further until dust settles.

G

The ADVFN board mentions that there's an article in today's "Sunday Times" which refers to what seems to be a rather wishy-washy response from IQE (LON:IQE).


htTps://www.thetimes.co.uk/art...

‘A supplier of parts for Apple iPhones has been targeted by a short-selling raider that claims it has misreported profits.

Cardiff-based IQE’s value neared £1.4bn last year amid optimism about its silicon wafers being used in the new iPhone X. Its stellar share price growth has also made it the top target for short-sellers on AIM, with 21% of its shares on loan, according to Markit.

On Friday, ShadowFall Capital and Research claimed IQE was reliant on two joint ventures for a big slice of its profits — £6.7m, or 30% of adjusted earnings in 2016. ShadowFall said the two joint ventures, which are based in Cardiff and Singapore, appear not to have any customers other than IQE. Losses are also piling up in the joint ventures, it added, with a cumulative £6.3m deficit last year.

“We have serious concerns about IQE’s governance, its reported profitability and sources of cash,” wrote ShadowFall. The research firm stands to profit from any fall in IQE’s shares.

IQE said: “ShadowFall’s statements about IQE’s joint ventures are without merit — it boasts that it has not engaged with IQE to seek answers to questions, and that explains the report’s misleading analysis.”

IQE said it was confident of “double-digit annual growth in wafer sales”, adding that “profits from wafer sales will far exceed licence income from the joint ventures in 2017”. Shares in IQE closed on Friday at 104.4p, valuing it at £788m.’

Unless there's something far more robust than that, the sp will, imo, likely tank on Monday morning.

(No longer a holder, as mentioned in previous post)

Having read the ShadowFall report. In my opinion, if IQE do not issue a detailed response that provokes a U-turn in SP action to this report/doc at 7.00 a.m. Monday morning, I will get out.

I think all of IQE's Directors reputations & honours are up for grabs in relation to these accusations. In my opinion, if there is any truth in this, the report becomes validated, & reflects that people at this level in business, truly think they can get away with 'pig & pork' BS, then its another very sad day in recent Uk business history..

Asserting that a company's shares are overvalued is one thing. Issuing a report that insinuates financial fraud by the company is quite another!

Don't hold, no intention to short, not involved in any way.......

Not convinced IQE (LON:IQE) have done anything wrong - I could give a counter conclusions to the Shadowfall article but why bother?

The hype around this company has fulfilled the stock market's purpose in one way - IQE managed to raise capital to expand their production capacity at the inflated values at the end of last year. I look forward to see what they do with that opportunity but still think they are overvalued as we speak.

Phil



Still think the company is overvalued but that has nothing to do with Shadowfall's report -

That's a great piece of research from Matt Earl - I'd concluded myself these were vastly overvalued a month back when there was real excitement over twitter about the stock. This however adds a level of fraudulent RPT's - assuming there's an opportunity I'll be looking to short as many as I can safely get away with first thing Monday!

I find the Shadowfall paper somewhat odd.

They seem to basically have two points.

Firstly they think that there is increasing competition in this market. However, they don’t give any details on that. Somewhat strange as it would be much more credible if they had some insight into the compound semiconductors epiwafer market, the market volumes, the strengths and weaknesses of each competitor. But they don’t appear to be knowledgeable in this area.

The second point is a very long discourse about the accounting treatment of IQE and two related subsidiaries. It looks like they’ve done extensive work on this but I didn’t notice any comments about what IQEs response to these concerns is. Have they not even asked IQE to clarify what’s going on? Why would you not do that?

It will be interesting to see what IQE do now. I think the management do have some responsibility to clarify the accounting treatment of these subsidiaries.

Disclosure - I have a long position in IQE

If you want to read the Shadow Fall bear argument directly it's here: http://www.shadowfall.com/iqe/

Personally I think that they raise some difficult questions around how IQE (LON:IQE) may be using off-balance sheet arrangements to manipulate their accounts. As a result I reluctantly liquidated my holding here this afternoon.

Here are two very different views published today of the prospects for IQE's share price:

http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn:IQE.L&it=le&action=detail&id=12265975

https://www.shareprophets.com/views/34137/breaking-bombshell-36-page-dossier-from-the-dark-destroyer-matt-earl-iqe-shares-grossly-overvalued

Shorters short for different reasons. In the case of Paysafe last year it was part of a concerted effort to drive the price down so that the company could be purchased on the cheap. Not saying that's happening here but it's more likely than it turning out to be another Carrilion!

I read the recent Minervini book before christmas and enjoyed it. There was one quote from memory along the lines of, when a stock starts to fall after making a top, 80% of stocks fall 50% and 50% of stocks fall 80%. If IQE had made a top around 186, this would suggest it could go down to 93 or 37!

I am no longer holding having traded successfully twice, and given back the profits in the third il timed trade and failing to cut losses quickly. Lets hope it is a lesson learned. Not sure if I have got the MM quote word for word but the way things are going IQE could easily hit either number before it turns up again.

Greyster

The company cannot disclose much about its customers because of non-disclosure agreements. At the same time it operates in just one part (epitaxy for compound semi-conductor wafers) of a supply chain for products that serve a wide variety of markets with different growth rates in a highly technical field. As such it has almost no peers to compare against and yet many analysts and commentators use comparisons against so called peers as a justification for whether it is over or under-valued. Furthermore, it needs capex to expand capacity, because sales are growing (i.e. a good reason) so FCF is reduced for now and those that want to value the company on that metric are critical. Others want to value it on other historic numbers which bear little relation to what the numbers are going to be 18 months down the line, again something of a hiding to nothing as the past cannot predict the future here.

The involvement of the company in the supply chain for VCSELs for facial recognition etc. on the iPhone X has been good for the company but caused huge volatility in the share price. Many of those with limited understanding of the company are either over optimistic thinking this is going to be another ARM overnight and chase the share price up, while others are overly pessimistic either misunderstanding the growth prospects substantially or hanging on every internet rumour about the iPhone X as if these rumours were factual, accurate and substantive (which they are not).

Many make a big noise about shorters as if they have sage like powers. They have essentially the same information as the institutional investors who were already long holders or who bought in at the recent placing. So, who’s got better insight among those two groups? Impossible to say. But if you give credibility to the shorters why not also to long institutional investors?

This all adds up to a rollercoaster. Only actual numbers from the company at the next update/results issue will give any clarification and even then the overly optimistic may be disappointed by good results not being even better and more volatility may happen for some time.

Overall, if you believe the mid to longer term opportunities for this company (5G, internet of things, LiDAR for driver assistance, HAMR disk drives, face recognition, augmented reality etc) are excellent, as I do, then it should not be a problem to be bullish here despite the rollercoaster. But if you cannot stand the volatility or take the time to understand the company, or are nervous about highly rated tech companies then better to stay out until there are actual results to base an investment decision on or a few years down the track when the best growth in the share price has passed.

I’m holding on for the rollercoaster ride.

Never really seen the attraction here - looks hugely overvalued - guessing all that is going on here is a lot of profit taking.

Its interesting that the shorters and the talk of the end of the iphone x / poor sales are killing IQE at the moment but the engadget article probably has the most relevance to believers and quotes a research note from KGI Securities' Ming-Chi Kuo who believes that while the current iphone x may end up a sacrificial lamb next year he believes that a complete overhaul of the iphone will result in all new models having the face recognition - that makes perfact sense. That can only be great news for IQE over the long term. Currently down around 20% and tempted to buy but would mean selling other shares.

Well I know that some holders are capitulating in the face of this trend - especially if they're a fan of Minervini - but I don't think that the writing's on the wall just yet. So I've decided to wait until the results come out in March before deciding either way as this is no Carillion (or even Quarto). Unless, of course, the company comes out with a statement that changes the picture on trading. That is certainly a possibility given rumours around the iPhone X being cancelled; even if the slack is taken up by new phones there'll be a delay while they come on line. Definitely a bit of a gamble.

100 seemed like an obvious buy point for me so I picked up a few, although I haven't quite decided on whether it's a trade or an investment. An obvious case of buy now, think later.

I bought back a small amount lust now as well.See how it goes.

Would be great to know what these hedge funds like Marshall Wace , Coltrane etc. have against IQE (LON:IQE). Any one know any numbers from IQE (LON:IQE) balance sheet that is causing them to short to this extent? It was quite clear what they had against Carillion (LON:CLLN).

To be honest, I see this drop as a self-fulfilling prophecy in a share very popular with private investors. The media has really gone for shorters off the back of Carillion, some even making the ludicrous suggestion that they caused it to go under (looking at you DM...). The fact that IQE has 11%+ out on short has been plastered in the money sections and I suspect certain holders are now panicking that IQE (LON:IQE) will go the same way. I could very well be wrong but it feels like this week the hedge funds are having a field day. If we get no TR1s in the coming days showing institutions off-loading, then I suspect I am right. Disc: I bought back a small amount this morning, may not be the bottom but am fine with taking the risk.

so insane that a stock can be attacked like this. down 17% so far today. its a hard one to judge this, I know its best to stay away as the share is getting attacked, but on the flip side the company posted greats results due in March in what was a previous positive update, so a upside yet to come. how much upside due is interesting. whilst a stock is getting shorted like this. looking cheap also so I wonder if people will start jumping back in.

Yes, now doing the opposite of what Minervini predicts ! I love his discipline so completely out as the chart is completely uninvestable (from a minervini perspective).

Not fighting the market on this one... smashed through the 200 EMA. Can see it falling further to next support level. Considering a small short in this as a sensible hedge against other growth stocks in the portfolio, but a bit wary of a squeeze given all the current stock on loan.

Article in the current issue of "Master Investor".
Pages 43-46.

https://masterinvestor.co.uk/magazine/#

Or you could just say its overpriced.

IMO IQE is now in dangerous territory. The sp has been on a slide since late Nov, breached 50EMA and 100EMA and within sight of 200EMA. (118)
If you believe Minervini, a 8-10% correction is not far off. If that happens IQE will I think fall further than most.

No position long or short.

Just adding to the bearish view on IQE, I notice that the short interest has really spiked up in the last few months to now over 10%, making it the 9th most shorted stock on the market. I am always hesitant to be holding positions with large amounts of stock being shorted on it as I respect the amount of work any fund would go to before going short on a stock, I remember Montier arguing that the shorts generally have a point.

https://shorttracker.co.uk/company/GB0009619924/

I have sold out over the last month or so, steadily going from my largest holding to now no position.

Deutsche Bank have Initiated with a Hold and Target of 140
Barclays have a target of 210p

big difference between the 2 brokers.
Sp now at 124p , im tempted to get back in but not sure, im wondering whether it can go down more.

so hes long on stocks with a stop loss in place.
I'm sure a pullback will occur that present a further buying opportunity.
my view is the market has turned towards value shares this year.

Mark Minervini tweeted again yesterday about (in his view) an imminent market correction.

Here is the link
http://www.minervini.com/blog/index.php/blog/show/the_voice_of_reason …

IQE issued a "2017 Pre-close Full Year Trading Update" today:

https://www.investegate.co.uk/iqe-plc--iqe-/gnw/iqe-plc---2017-pre-close-full-year-trading-update/20171220070026H7329/

I hear what hes saying but what will be the trigger for a crash. will it be crypto currency? if that crashed could it affect equity shares in such a big way, because its not related if that makes sense.
I personally would need to see a pick-up in volatility . but if things crash I believe everything will switch direction to a value play.

personally I have seen a lot of UK stocks correcting themselves.   Tech stocks are very high though.

ive also read that never go against the trend in a market, but be aware of what could come around the corner. That's where Neil Woodford messed up, he tried to predict things and messed up in a excellent stock market year.  Instead of going with the rally he went totally against it.

Also regarding a crash the same thing was being said this time last year markets will crash, and this year has been a very good year.

markets in the United States are at record highs compared to anywhere else so surely a crash is just around the corner?  but we have to relate current market price to the earnings.

Another factor to consider is, given current market conditions - low interest rates, low inflation, stable GDP growth, decent profit margins - higher valuations in the market can run. investors are comfortable with higher PE multiples when interest rates and inflation are low, when GDP growth is stable and when corporate profits are relatively high.    But I guess time will tell, until then its business as usual, but I agree everyone needs a plan incase markets turn.  

For Minervini followers, sobering thoughts in a tweet from the man

" Mark Minervini‏ @markminervini
9h9 hours ago
More
A Post Every Stock Trader Should Read - https://goo.gl/XTVFAo
"

IQE (LON:IQE) could help themselves by improving their investor relations. An update is due, so why not tell us the date? Also there was that nonsense about not letting Paul Scott attend their last presentation. I never did get the courtesy of a reply or even an acknowledgement of the email I sent them about that.
I am sitting tight on my holding for now, may add on a dip.

If i had spare cash / weaker conviction shares to sell I would be buying IQE (LON:IQE) now at below 150p but unfortunately its all gone on Versarien (LON:VRS) ... i don't believe that things have materially changed in the last 3 months and the apple news is more about reducing dependence on Lumentum. I still don't see anyone ramping up production of high quality wafers in the next 12-18 months to compete with IQE ... huge amount of growth and scale to come duing that time