Welsh company IQE up 300% on Apple speculation

Bloomberg

Could a Cardiff, Wales-based wafer company be the next big thing for UK technology investors? Investors trying to sniff out hidden Apple Inc. suppliers are betting on it, sending the shares of IQE Plc up more than 300 percent this year.
The company is the second-best performer in the FTSE AIM 100 Index year-to-date and has also beaten every stock in the Philadelphia Semiconductor Index, including high-fliers Nvidia Corp. and Micron Technology Inc. And even with the cautionary tale of companies who flew too close to Apple’s sun still fresh in investors’ minds, some analysts say IQE’s run is just getting started.
The reason for the excitement is familiar: speculation that IQE may be selling wafers needed by the technology giant for its new iPhone. “Our thesis is that lurking in the Cardiff suburbs is UK tech’s next large-cap tech company,” Stifel analyst Lee Simpson wrote in a recent report as he started coverage of the billion-pound chip company with a buy rating. Despite the year-to-date rally, he still expects more gains as “the full extent of the future growth opportunities has yet to wholly emerge to the market.”
IQE makes wafers that are needed for Vertical Cavity Surface Emitting Lasers (VCSELs), used for 3D sensors and widely thought to be included in the new iPhone.
While IQE’s link to Apple likely funnels through several other companies along the supply chain, Stifel’s Simpson estimates that IQE’s 3D sensor revenue from Apple may increase to $50 million by 2019 from an estimated about 2 million pounds last year. IQE reported 2016 sales of 133 million pounds. IQE Chief Executive Officer Andrew Nelson declined to comment directly on whether the company is a supplier to Apple, but said in an interview that IQE has about 80 percent of the VCSEL wafer market and supplies “pretty much all of the main players in the end markets.”
VCSELs are part of IQE’s so-called photonics—or lasers and sensors—business, which only accounted for 17 percent of the company’s sales in 2016, but is expected to become increasingly important as other phone companies follow Apple. In the company’s recent first-half results, photonics revenue grew 48 percent, while the larger wireless division rose just 9 percent.
Nelson said that VCSEL technology could also be used in other applications like driverless cars.
IQE’s wireless division probably also has ties to Apple.