UK's IQE swings to first-half profit and sees more AI data centre upside

IQE Returns to Profit on Surging AI Data Centre and Chip Demand

IQE's Financial Performance and Strategic Developments

By Neeshita Beura

First-Half Results and Market Drivers

Sept 7 (Reuters) - British chip components maker IQE swung to a first-half core profit and maintained its annual outlook on Monday, as rising demand linked to AI and data centres continued to support growth.

After a slowdown in the electronics market and disruption linked to U.S. tariffs, the Wales-based company has benefited from increased spending on AI infrastructure. That prompted IQE to raise its annual revenue guidance in July.

Role in the AI Data Centre Supply Chain

IQE supplies epitaxy for wafers that are later used to make lasers deployed in data centres, placing it near the start of the AI data-centre supply chain.

The company said positive momentum had carried into the second half after first-half performance exceeded its expectations.

Stock Market Activity and Future Plans

Its shares, listed on London's Alternative Investment Market, were last up 0.6%. IQE said it intended to seek admission of its shares on London's main market, targeting completion in the first half of 2027.

Manufacturing Expansion and Supply Chain Challenges

Indium Phosphide Demand and Capacity Expansion

Rising demand for indium phosphide, a key material used in photonics for next-generation AI data centres, will lead IQE to add manufacturing capacity across its sites in the second half, CEO Jutta Meier told Reuters.

Substrate Supply Bottlenecks

Meier said IQE was seeing some bottlenecks in indium phosphide substrate supply, but these were not expected to prevent the company from meeting its second-half targets. 

"It is a bottleneck that we are navigating with various negotiations with suppliers across the industry," Meier added.

Strategic Customer Agreements

Shift to Long-Term Agreements

Under Meier, IQE had shifted from spot orders to long-term agreements with customers including chipmakers MACOM and Tower Semiconductor, and telecoms equipment maker Lumentum.

Analyst Perspective on Revenue Base Transformation

"This represents a fundamental change to how the revenue base was built historically, and we expect further LTAs (long-term agreements) to be secured with marquee names over the coming months," Peel Hunt analyst Damindu Jayaweera said.

Financial Highlights

IQE reported adjusted core profit of £6 million ($8.1 million) for the six months ended June 30, compared with a loss of £0.4 million a year earlier.

($1 = £0.7400)

(Reporting by Neeshita Beura in Bengaluru. Editing by Jochelle Mendonca and Mark Potter)