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By John Harrington

Date: Tuesday 02 Sep 2008

LONDON (ShareCast) - The success of Apple’s iPhone and the rise of “me too” products spells good news for semiconductor wafers specialist IQE.

The company told Sharecast that the increased functionality of G3 mobile phones, such as the iPhone, requires more gallium arsenide (GaAs) chips to be included in the design, and as the leading global supplier of GaAs epitaxial wafers to chip manufacturers IQE is well placed to exploit this.

Following investment in a new state of the art manufacturing facility in Singapore the company has spare capacity to satisfy the expected explosive growth in handheld wireless products.

Furthermore, as chief financial officer Phil Rasmussen explained, with a large part of the manufacturing costs at the "always on" manufacturing facilities fixed, irrespective of the quantities produced, a significant chunk of any increase in sales revenue will feed through to the bottom line.

Rasmussen estimated that, with material costs accounting for around 45% to 55% of sales, around half of any revenue earned from an increase in sales will feed through to profits.

A £1.6m charge relating to the investment in the Singapore facility kept IQE in the red at the half year stage despite a big underlying improvement.

Losses for the six months to June rose to £740,000 from £572,000. The second half of the year will see a further £800,000 cost relating to the Singapore plant.

Operating profits jumped to £1.6m, from £0.1m, on sales up 27% to £30.2m.

Rasmussen said the company has around £90m of losses to offset against future tax charges.

"We remain on course to deliver strong growth in sales and profits for the full year," chief executive Drew Nelson said.

Beyond that time frame the company, which predominantly focuses on wireless products, has high hopes for the application of its technology in optical products, such as optical storage, laser projection, solid state light sources and high efficiency solar panels.

Rasmussen forecast IQE is ready to ride the wave towards more environmentally friendly products, such as LED lighting to replace light bulbs, and solar heating.

Gallium arsenide's superiority over silicon in the manufacture of solar panels should prove a big selling point, Rasmussen said, particularly as silicon's ability to convert heat to power deteriorates as it warms up.

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