The smartphone industry is in a fix. Mobile phone operators are trying to stoke excitement for super-fast 5G networks, but Donald Trump keeps killing the mood.
The American president’s crusade against Chinese telecoms giant Huawei over spying fears is throwing well-laid plans into disarray. On Wednesday, Vodafone and EE had to pull Huawei phones from their 5G network launches after Trump banned the company from buying American goods such as Google software.
A day later, the British chip designer ARM was forced to sever ties with Huawei for the same reason.
IQE, a supplier of wafer semiconductor technology for smartphone microchips, is also caught in the crossfire. The tech minnow, valued at £555m on London’s junior AIM market, admitted on Friday that the Huawei export ban could delay orders. Chief executive Drew Nelson said the ban would have “limited impact” on sales in the medium to long term. That did not stop the share price tumbling by 4% to 70.25p.
That may seem a touch unfair, but investors in IQE have been burnt before. The Cardiff company enjoyed a stellar run two years ago when appetite for smartphones seemed insatiable. IQE provides silicon wafers for 3D sensors used in the facial recognition technology found in iPhones. Such was the market’s confidence in IQE that it was valued at close to £1.4bn in 2017.
That confidence proved misplaced as iPhone sales slowed. The semiconductor group issued a profit warning last November after being told by a “major customer” — a chip company — that it was facing a cut in shipments. iPhone sales fell 17% in the second quarter of this year, and IQE shares are down 36% over the past year.
Short-sellers have played their part. IQE shares took a hit in February last year when Muddy Waters and ShadowFall, two short-sellers, questioned the finances and accounting practices. Muddy Waters accused IQE of being an “egregious accounting manipulator”.
Nelson hired new auditors to check the numbers. Despite that, about 12% of IQE’s shares remain out on loan, according to Markit.
Still, IQE’s best days may lie ahead. As the world’s biggest wafer maker, it is well positioned to benefit as 5G connectivity — 20 times faster than 4G — becomes mainstream. Demand for its tech could swell as 3D sensing expands into areas such as driverless cars. Analysts at Stifel have put a price target of 90p on IQE.
Investors may want to wait until the Huawei fog lifts and more 5G investment starts flooding in. Hold.
