September 3, 2019 / 10:20 AM / 5 months ago

UK's IQE slips into red as trade wars hit handset demand

(Reuters) - Semiconductor wafer maker IQE Plc (IQE.L) reported a first-half loss on Tuesday on weak demand for handsets globally and as the U.S.-China trade war disrupted the chip industry’s supply chain.

Washington restricted Huawei from buying U.S. goods in May, saying China could use the firm’s equipment for spying, an allegation Beijing has denied.

This has ratcheted up trade tensions between the world’s two largest economies, raising the spectre of billions of dollars of lost sales for chipmakers, software companies and others in Huawei’s U.S. supply chain.

IQE, which makes semiconductor wafers for chips used in Apple products among others, blamed the loss on a combination of lower sales and higher investment spending, largely aimed at taking advantage of a shift towards Asian supply chains.

It reported a pretax loss of 3.7 million pounds for the six months ended June 30 after a pretax profit of 6.6 million pounds a year earlier, and a 9% drop in revenue.

The Cardiff-based supplier of wafer products and services to the semiconductor industry manufactures for Asian customers in Taiwan and Singapore and has said it expected the region to become a source of significant new orders.

“IQE has been impacted pretty heavily by challenging market conditions, mainly as a result of the geo-political tensions around the world, specifically U.S. and China, but also there has been significant weakness in the handset market,” Chief Executive Drew Nelson told Reuters.

Nelson said that the curbs on Huawei had led to a host of Asian companies moving supply chains back to Asia.

“(There is) a very significant and dramatic shift of supply chain strategy from supply to major U.S. companies, where IQE was extremely well positioned, to Asian supply chains,” he added.

(GRAPHIC: IQE shares plunge as trade wars, handset weakness bite - here)

The chip industry is grappling with oversupply and the curbs on Huawei have delivered an additional blow, with supplier Broadcom Inc (AVGO.O) estimating $2 billion (£1.6 billion) could be knocked off the company’s sales this year. However, Intel Corp (INTC.O) and Micron Technology (MU.O) have raised some hopes of a recovery.

IQE’s shares were 2.3% lower at 50.6 pence at 1012 after falling as much as 6.6% in early trade.

IQE reiterated its annual revenue guidance of between 140 million pounds and 160 million pounds, anticipating higher second-half sales, but said core earnings margins will remain low. It reported revenue of 156.3 million pounds in 2018.

“It is a very uncertain world, with tensions not only between the U.S. and China, but also Japan and Korea,” Nelson said.

Reporting by Noor Zainab Hussain and Yadarisa Shabong in Bengaluru; editing by Tomasz Janowski and Emelia Sithole-Matarise

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