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Chip makers sizzle

A revival in microprocessor sales figures promise to underpin share prices within the UK semiconductor sub-sector this year, including ARM, CSR and Wolfson.

According to latest figures published by the Semiconductor Industry Association (SIA), sales for February of $22bn drifted 1.3 per cent compared to January, yet this represents a huge improvement for the industry over the last 12-months, up year-on-year over 56 per cent.

SIA president George Scalise says February sales reflect continued recovery in semiconductors, with demand driven by electronic products in emerging economies.

Apple's state-of-the-art iPad

Apple's state-of-the-art iPad

Huge semiconductor sales aimed at the latest PCs and mobile phones are predicted this year, with the SIA projecting 10 per cent and 17 per cent growth respectively in 2010. This is partly inspired by huge demand for smart phones and Apple’s new iPad, which shifted 300,000 units in opening day US sales on Saturday.

This year’s estimated revenue of $242bn should rise to a record $262bn in 2011, predicts the SIA, breaking the $256bn of semiconductor sales chalked up in 2007.

Undercover Columnist says:

Britain’s semiconductor specialists are geared to recovery but many trade on double-digit premiums to the technology sector’s PE of 26. IQE and CSR are among those to buck this trend on respective PEs of 20 and 13.

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Smartphones lift for IQE

Advanced wafer products maker IQE saw record second half revenues of £31.2m after rapid de-stocking in the firstSemiconductorhalf. Such a stark turnaround saw a £833,000 first half operating loss become a £3.4m profit between July-December. Net debt was cut from £18.1m to £14.9m, partly thanks to strong cash conversion.

IQE, whose semiconductor wafer products are used in mobile handsets, Wi-Fi and DVDs, among others, has benefited from volume hikes in smartphones as consumers rush for the latest gadget. 3G handsets typically use four or five times the number of Gallium Arsenide chips than the previous generation of handsets, says chief executive Drew Nelson.

IQE will continue to concentrate on high speed wireless communications markets which produce almost 80 per cent of sales and all operating profits. Opportunities in optoelectronics (converting light into electricity) also exist, such as Blu Ray technology and LEDs, while developments in renewable energy, such as ‘green’ CPV solar cells are on the cards.

The semi-conductor market seems to be turning for the better while outsourcing remains a major trend. IQE’s estimated 30 per cent share of an outsourcing market worth $600m (£370m) at the last count is very encouraging.

Panmure Gordon predicts adjusted pre-tax profit of £4.1m and EPS of 0.93p (£3.2m and 0.47p).

Undercover Columnist says:

These results underscore what a well run business IQE is but a 2010 PE just shy of 19 is a hefty rating in spite of the exciting growth potential. After a five-fold share price hike in a year, there’s no obvious catalyst for more in the short term.

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