Why is IQE proving such a hit with investors?
IQE is preparing for a world after Moore’s Law
The back drop
IQE has been around for a while, its first manufacturing operation was established in 1988 in Cardiff. After launching a US facility, the company was floated in 1999.
And soon after IPO, shares soared and then crashed. If you had backed the company on day one, then let me relay my commiserations. Shares are still languishing at less than a third of the IPO price, and around a sixth of the all the time high.
But then the all-time high price was set in the year 2000, it then felt the force of the dotcom crash.
If you had bought shares after the crash, in December 2002, let me send my congratulations. Shares are up almost 35-fold since then.
Investing in companies after the share price has crashed is risky, but as the tale of IQE demonstrates, it can pay-off handsomely.
What it does
But IQE is very good at something that until quite recently not many people cared about. It is very good at compound semiconductor wafers – indeed it has an 80 per cent share of the market.
Compound semiconductor wafers are semiconductors made of various materials, including graphene and are quite different from the traditional silicon based integrated circuits.
And this technology is important for more than one reason.
The end of Moore’s law
Moore’s Law is not really a law at all, it is a description and a prediction. It was defined by Gordon Moore, co-founder of Intel, in 1965 who said that the number of transistors on an integrated circuit would double ever two years. The idea has been tweaked since then, but these days it is said to mean that computers double in speed every 18 months to two years.
But for some time, it has become clear that Moore’ Law is not what it used to be, we are simply approaching the limit to how much smaller we can go, without over-heating.
But you know what they say when a monarch dies. The King is dead, long live the King – or Queen.
Silicon Integrated circuits are being replaced by new types of circuits. It is not so much Moore’s Law that is dying, but silicon integrated circuits that are dying.
Of course, compound semiconductor wafers are not the only option in the post Moore’s Law/silicon integrated circuit world. There is the option for specialist chips sets, and beyond that quantum computers.
But compound semiconductor wafers are very much of the moment and maybe will remain so for many years.
For as long as computers were doubling in speed every two years, few people cared about alternatives to silicon. But it is not like that now. Finding ways to prolong Moore’ Law is one of the most important challenges of the moment. And for companies that can play a key role, the rewards could be enormous.
All of sudden, IQE’s specialisation is in high demand.
IoT, VR and AR
But there is more to it than that. As the Internet of things gains pace, as virtual and augmented reality come into their own, demand for chips that are fit for this new, very high-tech purpose soars.
A recent surge in the IQE share price followed rumours that Apple was interested in its technology for the new iPhone. We may know for sure next month when the new product is released. But if shares in IQE do not rise within moments of a confirmation of a deal with Apple, it will be a surprise.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.