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IQE eyes opto expansion with Galaxy deal

08 Oct 2010

World's leading advanced semiconductor wafer foundry sees growing opportunity in infrared imaging; raises cash to fund acquisition, debt reduction and capacity expansion.

IQE, the UK-based semiconductor wafer foundry that specializes in advanced optoelectronic structures, has raised £20.8 million ($33.3 million) in a new share placement, a move that will allow it target emerging photonics applications in a number of ways.

Coinciding with a sharp recent increase in its share price, the company issued 65 million new shares at 32 pence each, and which were admitted to the Alternative Investment Market (AIM) stock exchange in London on October 5.

The company had already agreed the acquisition of US-based infrared wafer specialist Galaxy Compound Semiconductors, and the cash raised through the new placement will both pay for that deal and provide a $1 million investment in Galaxy operations during 2011.

Emerging applications
In its latest financial results, released in September, IQE said that it saw emerging optoelectronic applications as a key engine of growth for the future. The company has traditionally relied on RF semiconductor applications, in particular the fast-growing market for smart phones, for the bulk of its revenues, but has long-standing expertise in a wide range of photonics areas.

These include VCSELs used in finger navigation and optical USB applications, for which revenues grew 70 per cent in IQE’s latest half-yearly results. Other key areas include free-standing GaN substrates for solid-state lighting, and wafers for high-efficiency cells used in concentrated photovoltaics (CPV), an application area that has doubled in value to IQE in recent months.

Through the Galaxy acquisition, IQE will now be able to add significantly to its efforts in another fast-growing photonics application: infrared imaging. Galaxy’s GaSb and InSb wafer substrates form the base for high-specification detectors used in thermal imaging cameras, night-vision cameras, missile guidance and biomedical imaging – all areas tipped for future growth.

Prior to striking the deal, IQE already had expertise in antimonide materials, but Galaxy gives it access to significant new clients involved in both commercial and military applications, including some major US defense contractors. IQE’s existing Wafer Technology facility in Milton Keynes, UK, will also be able to provide independent supply from the Galaxy facility in Spokane, WA, an important consideration for defense markets.

Debt reduction
As well as providing the cash to pay for the Galaxy acquisition, which will cost IQE between $5.5 million and $14.15 million – the final amount is dependent on Galaxy’s EBITDA profitability in fiscal 2010 – the money raised through the new share placement will be used to strengthen both IQE’s manufacturing operations and balance sheet.

Approximately £10 million has been earmarked to repay debt. IQE said in its latest results that its net debt stood at £15.6 million on June 30, 2010, and the cost of servicing its £7 million revolving credit facility had been expected to increase significantly in the opening quarter of 2011 from the current interest rate of 4 per cent.

With business now booming – first-half revenues jumped 54 per cent year-on-year, partly a result of the very slow start to 2009 – IQE expects its manufacturing facilities to be running at approximately 70 per cent of full capacity by the end of 2010. As a result, some of the money raised will go towards expanding that capacity, so that it is able to handle sudden surges in demand for its products.

HÜBNER PhotonicsBerkeley Nucleonics CorporationTRIOPTICS GmbHECOPTIKMad City Labs, Inc.Universe Kogaku America Inc.Alluxa
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