IQE for the Novice

5th Feb '18 by Ken Lowes

29 comments 10408 reads

Prior to all of the hype, there is another name for it but I can't remember what it is, perhaps you know. Prior to all the hype I held IQE for about three months,. I liked what the company was doing and it seemed like a fair bet as they say. I tucked away 35% and shortly afterwards the share erupted. I am sure it didn’t start on this site but it was helped along by a number of eager investors including our very own Paul Scott. I made a couple of postings, negative of course, so that would be sour grapes for exiting too soon. The share was going to make a killing for all concerned and climbed to 181pence. Then the much-praised iPhone X on which much of the hype was based didn’t seem to match up to the pre publicity. The accounts of IQE didn’t seem to change a lot from previous years, a ton of money was injected into the company at what appeared to be an advantageous share price to gear up for the future production which it was suggested would come on the back of iPhone X and some very well thought out postings from well respected participants filled the pages of one of the most comprehensive blogs ever seen.

Someone bought at 181pence, lots of people made short term gains as much as 200% plus. But someone is losing 80 pence a share as I write, that will be 44%, not a lot at the moment, but if it does go back to 60 pence, it will be. This is a share that many bought in the name of Minervini, when in reality he would have been out a long time ago. Both Minervini and our illustrious Ed Croft have stated that when a share collapses it may be time to leave, perhaps the market knows more than we do. Minervini also says that “you should never fall in love with a share” he also says never lose a profit and cut your losses.

Perhaps IQE will one day be a great share but seriously should you really be buying it now with so many signs or would you rather wait until someone says you should have known better -- but that will be long after they benefitted from the hype and hardly whispered when they sold..

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rhomboid1

9th Feb '18

I’m sure he’ll forgive a brief précis ‘past ho hum , future unclear but brokers keen & valuation ok if they deliver but impossible to value unless you can get your head around the tech they’re rolling out”

Taff6

Hi Ken
No problem
However I only shared for information, I don’t have a strong view either way on IQE (LON:IQE)
All the best J

jonesj

Well, I bought my first stock in 1987 (as a student).

My advice to a novice on IQE would be to observe it from a safe distance. You don't need to be long, or short, but you can just be out of it and observe from a safe distance.

Whilst not expending too much time on IQE, just keep reading something else altogether more educational. Like almost everything said by Charlie Munger. And observe IQE from a very safe distance, neither long nor short.. Why take the risk ?

Aislabie

10th Feb '18

I was briefly invested in IQE (LON:IQE) partly influenced by (what I see now were) UK based comments on its strong position in the VCSEL industry. This view suggested that in a continued upswing in the industry IQE was a leader who would inevitably benefit.
My brief investment ended as I read more non-UK articles that often omitted IQE entirely or mentioned only in passing as one of the runners and riders in an industry with a number of players and several who were bigger.
I recognized I did not have enough knowledge to know where they placed in the market so sold before my ignorance became expensive.
I would still be interested to know, if any on this board can tell me, what is the importance of IQE in the world market?

Ken Lowes

Not sure Jane, try this https://www.sharescope.co.uk/philoakley_roundup.jsp
I have used the service for years and I think Phil is well respected by his peers. He has also written a book "How to pick quality shares" which works really well with Sharepad.
Regards
Ken

janebolacha

Ken, thank you very much, that's very kind of you.
I have been receiving the occasional company analysis from Phil Oakley for several years
but have never subscribed. His work is always first rate, I agree, and his newsletters really
pithy and clearly thought through.
I may well subscribe, it looks very worthwhile.

Thanks once more.
Regards, Jane.

Damian Cannon

12th Feb '18

I'd certainly recommend subscribing Jane - I always learn a lot from Phil's analysis. I also bought his recent book as a Xmas present and it's an excellent accompaniment to his general analysis. In fact I liked the book so much that I subscribed to SharePad to replicate his process!

Damian

bdowling1956

13th Feb '18

Very Interesting. Its the differences in the opinons put forward here that I like.

GrahamF

Aislabie, IQE (LON:IQE) occupy a niche. They do epitaxy for compound semiconductors. That means they make wafers for compound semiconductors (as distinct from silicon semiconductors) that are used by other component manufacturers further along the supply chain to create various components that end up in a wide range of applications. VCSELs are just one application in the area of photonics for these materials but this is the area attracting most attention because VCSELs are used in the iPhone X.

IQEs businesses with component manufacturers is bespoke; the wafers are designed for each customer. Additionally, because it has previously been expensive to make these components, although the physical properties are potentially better suited than silicon to certain applications, the uptake of compound semiconductor technology has been slow and it has been jam tomorrow. Comparisons with companies making standardised silicon chips for CPUs etc are not really worthwhile.

Historically IQE over promised and under delivered leaving many disappointed investors and underwhelming sets of financial results. So, those focused on the past are very skeptical about IQE.

However, as the old saying goes when it comes to things financial the past is not necessarily a good guide to the future.

By good judgement or luck IQE find themselves as the predominant out sourcing partner for compound semiconductor wafers for a significant number of niche applications that are set to ramp up quickly over the next few years. These applications are in the fields of facial recognition, driverless vehicle control, 5G telephone communications, internet of things communications, heat assisted magnetic recording for higher capacity hard drives and others. These are multiple nascent opportunities that IQE should be able to take advantage of. They are applications that barely existed historically and so the historical results cannot give any guidance to the future. There is some good presentation material on the IQE website.

But you won’t hear details of IQE’s customers for these technologies generally because they are bound by non-disclosure agreements. Much of the coverage by reporters also fails to give a fair assessment because it is overly focused on just the iPhone X or confuses IQEs position with companies further down the supply chain.

So, investors tend to fall into two camps. One camp is historically focussed and obsessed with the financial results from the last few years. The other camp is not bothered too much by history and is focused on the high growth opportunities. This leads to extremes of commentary all the way from the shorters complaining about JV deals done some time in the past, lack of dividends, low free cash flows etc. through to some who have an almost irrational exuberance that IQE can turn into another ARM overnight to the point where they forget that ARM and IQE are as different from one another as Chris Froome’s racing bike is from Lewis Hamilton’s F1 car. Both are high tech vehicles but that’s pretty much where the similarity ends.

So opinion can be very polarised. You need to do some reading of the company presentations etc to make up your own mind if possible rather than being overly swayed one way or another by the comments on these and other boards.

(Disclosure - I hold a long position in IQE)

pka

Graham, That's the best post I've read about IQE in a long time!

nickwild

I agree pka a very clear commentary by Aislabie.

Many thanks for the compliment!

Graham, many thanks for such an excellent response to my IQE (LON:IQE) question. Much appreciated.
My Stocko subscription is worth it right there!

vik2001

14th Feb '18

just been doing some T.A on the chart. looks like IQE has found a bottom and a recovery is in play, the MACD levels on the chart have crossed over to the upside.. however there is no support by the 50/100/150 M.A / but there is support now coming in from 10 day and 20day M.A

This is just my opinion and no advice intended.

Nick Ray

however there is no support by the 50/100/150 M.A / but there is support now coming in from 10 day and 20day M.A

Just to demystify the idea of "support" from an SMA, note that an N-day SMA is really just a smoothed version of the price (N/2) days ago.

So saying there is no "support" from the 50-day SMA is really very similar to saying the price is still lower than 25 days ago. As you note the price is now close to what it was 5 days and 10 days ago.

runthejoules

Nice work Graham. Very liquid and instis seem to have been very up for lending out for shorting. Now they're closing slowly - 9.17% from 12% (except those positions under 0.5%.) Results expected March I believe, EPS forecast of 4.2p. I'm underwater atm but will sell down on any spike as it's too volatile even if successful!

AnonymousUser192020

I'm a very rusty chartist, but it looks as though the downtrend channel of lower lows and lower highs on the daily chart might just have been broken. However, until until we see a well-defined series of higher highs and higher lows emerging it's premature to call an uptrend. I see this as potentially a stronger signal than bouncing off arbitrary levels of SMA/EMA etc. As others have noted, it's interesting/ concerning that the significant volume of shorts closing this week hasn't translated to a bigger bounce.

tombuz

17th Feb '18

I have only just seen Graham Ford's summary of the IQE's position in the market. Brilliant.

Tombuz, I agree with you that Graham Ford's post is brilliant. I think it's a very well-balanced summary of the bull and bear cases for IQE's shares.

Another rapidly growing application area for IQE's epiwafers, which Graham didn't mention in his post, is for the electronic devices that convert electrical to light signals, and back again, in the optical fibres that are used in the enormous data centres of internet 'cloud' providers (such as Apple, Amazon, Microsoft and Google) to reduce their huge power consumption.

ed_miller

22nd Mar '18

My last post on IQE (LON:IQE) - posted on Paul Scott's SCVR (- 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.

IQE for the Novice

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Ken Lowes

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