Good morning!

Today there are updates relating to:

Also, a few words on £RDL (in which I have a long position).


  • Share price: 43.9p (-39%)
  • No. of shares: 791 million
  • Market cap: £347 million

Trading update

Wow, commiserations to holders at this one.

We are going to have a sales miss for FY 2019. Revenue will be in the wide range of £140 - £160 million, failing to hit consensus of £175 million.


This is a larger impact than the previously guided risk related specifically to Huawei, due to the far-reaching impacts on other companies and supply chains that are now becoming evident.

Shareholders are right to be disappointed that management failed to predict the "far-reaching impacts" of Huawei's problems.

There has been a reduction in forecasts from a number of chip customers - I wonder if Huawei is the only major phone manufacturer whose demand has receded, or if there are more? IQE refers to a "weak smartphone market" which has impacted H1.

Divisional Analysis

  • Photonics - now forecast to have less than 30% revenue growth, versus >50% previous guidance. Lots of work being done to bring in new customers.
  • Wireless - now forecast to decline by 20%-25%, versus previous guidance of a 15% decline. There are "significant global supply chain shifts".
  • Infra-red - still doing well. Guidance unchanged for 15% growth.

For context, the main contributors to adjusted operating profit last year were Wireless (£12 million) and Photonics (£11.5 million). Infra-red contributed £3.4 million.

Profit Guidance/Outlook

This is where things start to look really bleak.

Adjusted Operating Profit Margin - "significantly below" previous guidance of over 10%.

I've spoken many times about the capital-intensive nature of this business. It is now forced "to avoid non-critical capital expenditure".

There will be "active management of all cash flows" to ensure the company doesn't break through the limits of its lending facility.

Outlook - "cautiously optimistic" (this phrase doesn't help much). Seems happy with the bigger picture outlook:

...we expect that the significant market drivers such as 5G, connected…

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