Shares in IQE plc (LON:IQE) shares picked up in early trading Tuesday but stayed well off previous highs after a plunge on Monday when it expected a drop in financial performance.
In an update on Tuesday, the AIM 100 semiconductor manufacturer confirmed that it was notified by a “major chip company” in the vertical-cavity surface-emitting laser (VCSEL) supply chain that it one of its largest customers for 3D sensing laser diodes would be materially reducing shipments for the current quarter.
READ: IQE's profits dented by investment in its flagship foundry in Newport
IQE said that as a result of this reduction, it now expected to deliver revenues of around £160mln for the year, with photonics wafer revenue growth for 2018 now expected to be 11% as opposed to previous guidance of between 35% to 50%.
As a result, the company said its adjusted underlying earnings (EBITDA) for the year was now expected to be around £31mln, lower than last year’s figure of £37.1mln.
The picture was less gloomy across the firm’s other segments, with wireless wafer revenues expected to grow 8%, above the guidance of 0%-5%, while infrared wafer revenues were forecast to grow at or exceed the compound annual growth rate (CAGR) guidance range of 5% to 15%.
Dr Drew Nelson, chief executive of IQE, said that the VCSEL inventory overbuild following a second-half ramp for a new 3D sensing consumer product application for this technology, “took longer to work through the inventory channels than the industry expected”.
He added that some of this inventory had likely satisfied product build as late as September and October 2018, which resulted in “a steeper ramp for VCSEL production in the fourth quarter”.
On Monday, IQE issued an update in which it was assessing the impact of the reduction in shipments, saying at the time that it expected a “material reduction” in financial performance for the year causing its shares to plunge 29%.
In a note to clients, analysts at City broker Peel Hunt were more positive, saying that they were “convinced we are still at the foothills of the opportunity” and that the share price reaction was positive for IQE’s “medium to longer-term value upside”.
However, the broker added that they found the limits on visibility of the supply chain “unsettling” and were “disappointed” by the worse than expected visibility on the near-term 3D sensing pipeline.
Shares had recovered slightly on Tuesday Morning, up 6.2% at 71.2p, but were still off Friday’s close price of 93.8p.