16th Jan 2023 14:34
(Alliance News) - IQE PLC struck a cautious tone on Monday, saying it expects to see some destocking in the wider semiconductor industry which may hurt demand from its existing customers in the first half of 2023.
Shares in the compound semiconductor wafer products supplier were down 21% at 47.28 pence on Monday afternoon in London.
Despite the destocking issues, IQE said revenue for 2022 is expected to be 8% higher than the year prior, when it stood at GBP154 million.
The rise is anticipated after accounting for the impact of provisions for a small number of doubtful debts and the re-phasing of revenue from one contract from the final quarter of 2022 to the first quarter of 2023, it said, however.
At constant currency, revenue is expected to be broadly in line with the prior year.
Russ Mould at AJ Bell said this earnings setback could have "wider implications" for the global economy and financial markets, "even if the company's market cap[italisation] is barely GBP400 million."
"This is because IQE cites an inventory bulge at customers across the USD600 billion-plus global semiconductor industry," Mould explained.
As such, it was a "fair proxy" for worldwide economic activity and, "if past performance is any guide", a useful measure for stock markets' risk appetite.
Mould added that industry specialists were also already forecasting global semiconductor sales to drop by around 3% from 2022's record-high levels to sales approximately USD590 billion.
"Whether IQE is referring to excess piles of unsold end-product or unused semiconductors is not clear, but a study of the balance sheets of the 30 companies which make up the Philadelphia Semiconductor index, or SOX, suggests there is a back-up in the supply chain somewhere – and this is a big change from the last two years, when chip shortages and calls for increases to supply have been the dominant themes," Mould said.
"If IQE's warning means that there are piles of unsold mobile phones, tablets, computers, cars and other gadgets lying around on top of unsold chips, then the industry may have a problem on its hands, especially if forecasts of a global economic slowdown prove accurate."
Last week, Taiwanese chip company TSMC predicted slowing sales for the start of 2023 as a potential recession dampens global demand.
Taiwan Semiconductor Manufacturing Co operates the world's largest silicon wafer factories and produces some of the most advanced microchips used in everything from smartphones and cars to missiles.
It is regarded as a global economic bellwether because so many of its chips are in such a wide array of devices.
The firm predicted first-quarter 2023 sales of just USD16.7 billion to USD17.5 billion – figures that would constitute the first revenue decline in four years.
This slowdown talk in demand was perhaps the greatest concern for investors today, who will now be looking ahead to reporting season for chipmakers.
NXP Semiconductors will publish its full-year results on January 30. Advanced Micro Devices will publish its results the following day.
In spite of the gloomy outlook got the sector, Shore Capital said it remains bullish on IQE shares, given its capital expenditure flexibility.
"As communicated by the likes of Skyworks, Samsung, etc. the semis downturn has deepened; however, with the cycle expected to bottom mid-2023, the "pipeline opportunities" validate our bullish stance on IQE's financial 2024/25," it concluded.
By Heather Rydings, Alliance News senior economics reporter
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