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IQE now engaged with 20 chip firms on VCSELs

29 Aug 2018

UK-headquartered epiwafer foundry is rapidly expanding capacity for VCSEL production at its new site.

IQE, the London-listed independent epiwafer foundry, has posted a 4 per cent rise in sales for the first half of 2018, ahead of what is expected to be an extended boom period as demand for VCSELs (vertical cavity surface-emitting lasers) intensifies.

The company, headquartered near Cardiff, is currently installing a raft of reactors for VCSEL production at is new site in Newport. The equipment is used to deposit the critical and complex sequence of light-emitting semiconductor layers on 6-inch diameter gallium arsenide (GaAs) wafers that are subsequently shipped to customers to be turned into individual VCSEL chips and components.

With more than 20 customers for VCSELs now signed up, the Newport foundry construction and fit-out is said to be proceeding well.

“Five reactors had been successfully installed by the end of H1 2018 and a further two have been delivered in August 2018, with three more scheduled for H2 to bring the total to ten reactors during H2 2018,” announced the firm. “Commissioning and qualifications are ongoing and initial production is expected to commence in the latter part of H2 2018.”

Step change
That level of engagement should result in a step-change in shipments compared with last year, when sales of VCSELs for use in 3D sensing and gesture recognition applications in smart phones were dominated by a single customer.

It means that the photonics-related proportion of IQE’s revenues is set to increase dramatically in the coming months and years, a significant change from the company’s business until now, which has typically been dominated by sales of epiwafers that form the basis of radio frequency components like power amplifiers.

In the six months to June 30 this year, that bias was still evident: sales to wireless applications, as IQE refers to them, accounted for £47.8 million of the firm’s total £70.4 million revenues.

Photonics-related sales, which includes VCSELs and indium phosphide (InP) laser structures used in emitters for optical communications applications, accounted for just under £19 million of that total.

But with VCSEL technology set to proliferate across Android-based smart phones in the near future, IQE’s financial guidance indicates that the company’s photonics-related sales will grow at a compound annual rate of 50 per cent for the next 3-5 years. Over the same period, IQE’s “wireless” sales will grow at less than 10 per cent each year.

At the moment, sales of photonics-related epiwafers are also significantly more profitable for the firm than its more established wireless technologies. IQE’s accounts show operating margins of around 25 per cent for photonics, nearly double that of the wireless products.

'Super cycle'
CEO Drew Nelson said in a release announcing the latest figures: “IQE has taken the opportunity during H1 2018 to accelerate and expand its qualification activities for the fast-growing VCSEL market for consumer applications, and is now successfully engaged with over 20 companies in this arena.

“Coupled with the installation, staffing and run-up of the initial high-volume production tools in our flagship Newport Epi-Foundry, these activities represent major steps forward in securing and further strengthening IQE’s leading position in the global supply of VCSEL wafers for multiple consumer and industrial 3D sensing applications.”

He added that although the pre-ramp investment in Newport has impacted IQE’s first-half profitability, he was confident that the spending will deliver strong increases in both sales and profits as 3D sensing becomes widely adopted in mobile platforms and other large volume applications.

And in its statement to the London Stock Exchange, the company pointed out that the 6-inch GaAs diameter wafer capability would enable its customers to reduce significantly the unit cost of VCSEL chips, thus further accelerating the adoption of this technology.

“There is little doubt that sensing technologies, from 3D sensing to gesture recognition and lidar, will represent a major growth area in the near term and extending into the future,” added the firm. “Some analysts have referred to this as the start of a ‘super cycle’. Indeed, this is reflected in the breadth of product development programs in which IQE is engaged, and which now span multiple Tier 1 OEM’s (directly and via chip customers) who are targeting mass market ramps in 3D sensing applications over the next 6 to 18 months.

“However, VCSELs have many more applications beyond sensing, including fiber-optics for data centers, industrial heating, and machine vision to name a few.”

The first tangible results of that VCSEL proliferation should be clearly evident when IQE reports its full-year results for 2018, ahead of an extensive ramp in production next year.

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