IQE: Diversification Combats
Edison | Dec 21, 2015 06:56AM ET
Diversification combats wireless volatility
IQE's (L:IQE) confirmation that full year results are expected to be in line with 21 December 2015 expectations, despite broadening weakness in wireless, was encouraging. This reflects both the progress the company is making in diversifying its revenues and its more measured approach to setting expectations. With the company's rating at a substantial discount to its peers, we believe this continued progress should justify an upward re-rating in the shares.
Growth in wireless sector slowing
Weakness in the handset chip supply chain has broadened into Q4, most recently to include those with substantial exposure to Apple (O:AAPL), such as Dialog and Imagination Technologies. However, the size of IQE’s market share (around 55% of the global outsourced wireless epitaxy market) reduces its exposure to any individual phone manufacturer even though customer consolidation makes some ‘lumpiness’ in revenues inevitable. Moreover, while market growth is flattening, we believe that the sector should remain an important cash cow for IQE.
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