Good morning, welcome to IQE's 2023 Annual General Meeting. I'm Phil Smith. I'm Chair of the IQE PLC board. I'd like to thank you for joining us today, whether that be in person, as we have here in the room, or through our webcast facility. The IQE Board of Directors are all present here today. Americo Lemos, our CEO, as well as our Non-Executive Directors, Carol Chesney, Andrew Nelson, Derek Jones, and Victoria Hull. We also have our Interim CFO, Neil Rummings, present at the meeting today. There are at least two shareholders present, which means the meeting is quota. I, therefore, declare the meeting open.
Before proceeding with the formal business of the meeting, where after which we'll hear from Americo, I'd like to remind shareholders there'll be an opportunity to ask questions for those in the room after Americo's presentation, with the option to submit a question for the board through the webcast portal.
Question submission on the webcast will close at the end of Americo's overview. I can confirm that notice of the AGM, together with explanatory notes, was published on the 30th of May, 2023. Accordingly, the requisite notice of the meeting has been given, and we propose that the notice is taken as read. To more accurately reflect the views of shareholders, voting today will be done by way of a poll on each of the resolutions put to the meeting.
This is consistent with the approach that IQE has taken at recent AGMs and is seen as best practice, as it gives all shareholders the opportunity to participate in the decision-making of the company and have their votes recorded. Those who are attending the meeting in person will be able to vote by submitting the paper poll card, which has been provided to them. Before opening the poll, we are withdrawing Resolution 5 from the meeting due to the recent changes of CFO. I now declare the poll formally open. The poll will close in five minutes after the end of the meeting.
If you have any questions about filling the poll card or if you require any assistance, please speak to the registrar's representative, who will be standing by the exit. Subject to the necessary majority of votes having been cast in favor, each resolution will be deemed to have been carried. Resolutions 1, 4, 6... Sorry, 1 to 4 and 6 to 11 are proposed as ordinary resolutions and require a simple majority to be passed, and Resolutions 12 to 13 are special resolutions, which will be passed, require a majority of 75% in favor of the resolution to be passed.
The final results of the voting, including the proxy votes on each of the resolutions, will be announced through our regulatory information service and published on our website as soon as reasonably practicable. We will now proceed to vote on the resolutions, which are formally proposed to the meeting. Resolution 1: to receive the directors' and auditors' report and audited financial statement for the financial year ended 31st of December, 2022.
That one has, yeah, registered votes that were passed. Resolution 2: to approve the directors' annual report on remuneration for the year ended 31st of December, 2022. These are all on the slide and available if you want to read them, of course. Resolution 3: to elect Phil Smith, myself, that's passed. Resolution 4: to re-elect Americo Lemos to the board, that's been passed as well. Resolution 5 is withdrawn, as we said. Resolution 6: to re-elect Carol Chesney.
That's also been passed by pre-voted. Resolution 7: to re-elect Victoria Hull. Resolution 8: to re-elect Andrew Nelson. Resolution 9: to re-elect Derek Jones. Resolution 10: to reappoint KPMG LLP as auditors. Sorry, onto that. Resolution 11: to generally and unconditionally authorize the directors to allot shares.
These last two resolutions, which are obviously more complex in the language, but you can see on the slide, it is the to generally and unconditionally authorize directors to allot shares, so 11. 12: to the disapplication of pre-emption rights. I'll not fully run through that, but obviously you can see that on the screen and was previously published. Resolution 13: disapplication of pre-emption rights with additional authority, likewise pre-published and passed.
Okay, I think we can move on from that. Having officially gone through those, concludes the formal business of the AGM. As previously mentioned, the final results of the meeting will be announced to the market through our regulatory information service and posted on our website as soon as practical. I'm now delighted to be able to hand over to our CEO, Americo Lemos. Americo, over to you.
Thank you, Phil. Good morning, everyone. For some of you in the room or some watching us online, thank you and good morning. Welcome to our meeting. We are in a unique industry that has become vital to everyday's life and to pretty much every business. A lot is happening in our industry. Let me start with the macro environment. You all have heard about the temporary downturn that our industry is going through, due mainly by inventory buildup that has to be burned through. Also, some geopolitical tension disrupting some of the supply chains, inflations, etc .
Our view is this downturn is a temporary phenomenon that impact pretty much everyone that plays in this industry. What is important, though, is to look at the opportunities ahead of us. There's never been a better time for our industry and for IQE. Let's take a look at. The supply chain regionalization is happening. We all talk about the decoupling in the global ecosystem, which creates regionalization of supply chain.
Therefore, IQE being globally positioned around the world, is the primary supplier and beneficiary of that trend. Second, we witness a lot of government incentives coming into the business. We are very pleased, by the way, to see the recent semiconductor strategy announcement in the U.K., which promote compound semiconductors as one of the pillar in which we play very, very well and play a key role. We also see incentives in the U.S. through the CHIPS Act.
Not only governments, but industries are putting in a lot of capital in the business, which is good to fuel the growth of the industry that we need to see happen. The technology trend are also playing in the favor of growth: electrification, net zero requirements, the metaverse, and so on and so forth. All that put together will provide a phenomenal growth over the next years to come for this industry and for the company in particular. Let's look at the numbers. The semiconductor industry at device level is forecasted to be a $1 trillion business by 2030.
We are only half of that today. That growth is phenomenal for the industry. If we zoom in and look at what happened to the compound, the growth rate is even higher than the global semi, 16% CAGR over the next five years or so. If I zoom in and look at our addressable market as IQE in the epiwafer business, we see a growth of 22% moving forward. Phenomenal opportunities for us to go capture. How do we do that?
We are the company that is going to enable an intelligently connected world with low carbons. Why this is important? We all know connectivity is no longer optional. Not only our phones, our homes, our cars, all have to be wirelessly connected to the cloud at 100%. They all becoming more and more intelligent. We'll talk about it in a minute. Yet, energy crisis has demonstrated that the world where low-cost energy is fueling technology growth is gone. We have to address the energy crisis through a low-carbon world, and that is where the power electronics of compound semiconductors comes into play.
IQE is the company that is going to enable this intelligently connected low-carbon world. You heard the word intelligence. We witnessed the rise of digital, right? Every business is digitalized today. The economies are digitalized today. Now, we're gonna see the rise of AI. AI used to be in some sectors of the economy and the industry. We are gonna take AI to every single vertical. Okay, that is happening today. We see a lot of news regarding AI, and every vertical is implementing AI in some shape and form, the way they implemented digitalization.
How are we gonna play in that AI space? First of all, it is very important to understand that the hardware, and therefore the semiconductor chips, being silicon or compound, are fundamental enablers. Okay? 40%-50% of the value stack resides into the hardware space versus software. compound semiconductors is one of the critical elements of the new architectures. At IQE, we have a complete set of materials that underpins the AI ecosystem. Let me explain.
To have an efficient and effective AI ecosystem, we need to start with the edge. What is happening at the edge is advanced sensing capabilities. We have a long history in sensing business, consumer, military space. We're gonna take that technology and put it in every vertical. Why? It allow us to create new capabilities in advanced sensing for the AI network. It is true for every connected device, it's true for automotive, it is true for consumer, it is true for homes, et cetera. Industrials, by the way. Once we have provided advanced sensing capabilities, as I said, everything is connected.
You need to provide a low latency and ultra-high speed network to connect those devices. Not just smartphones, but everything is going to be connected. That's our 5G infrastructure and home connected Wi-Fi 6, 6E, etc . The data goes into the data centers. There is a architectural revolution happening on the data centers, if photonics at the core of the data centers, to be able to process all that amount of data, okay? That is our photonics products. All of that has to operate at ultra-low power. From edge computing to cloud computing, we need to provide power-efficient infrastructure.
That is our GaN power. IQE, with its platforms being VCSELs, being GaN for RF, GaN for power, and photonics, would be at the core of this AI hardware infrastructure moving forward. We are engaged with a certain amount of customers to make this a reality already. The strategy to implement this was partially presented at the CMD at the end of last year. Really, the strategy we implement to be able to grow the business based on our target has two aspect to it. One, we want to maintain our position into connect and sensing. That's what I said earlier, advanced sensing capabilities and wireless connectivity.
We're going to continue to take our technology into every single vertical that is out there in the digital world. The second leg of the strategy is our diversification into the power electronics and the microLED, taking all the core knowledge that the company has over the last decades, putting that into very, very efficient GaN power and GaN display technologies for the industry. Maintain and diversify would provide us the growth we need into those new markets to be able to fuel the new AI economy.
We have unique strategic advantages as a company that I think very few, if none, has out there. One, our technology platforms. We have five commercial technology platforms that we presented. We enable customers to innovate very, very fast, combining our know-how with their own capabilities. Second, we are a manufacturing services company, so the global footprint that we have will enable us to deliver a resilient and secure supply chain to our customers. The defragmentation of the supply chain plays in our favor.
We are able to build closer to customers, closer to specific markets, and manage risk in this global geopolitical world that we live in. The third point is important because the recent chip shortage has shown the cost of not having wafers, right? We all remember. Therefore, the ability to scale fast with customer demand becomes absolutely critical, and IQE has that capability.
With our fab infrastructure in the U.K., in the U.S., and in Taiwan, we can scale 3x the wafer output without having to build a new fab. That is a fantastic advantage from the time to market perspective for our customers and for us to grow the business. Three strategic advantages: technology roadmap, global footprint, and ability to scale to meet the market demand. I like this V pyramid because it shows how critical it is to be a global pure-play epitaxy provider today.
Let me put it simple: If a customer wants to deliver epi wafers in three continents, Taiwan, U.K., and U.S., either they build three fabs or they come work with us, right? There are many, many equipment providers. There are many device providers. There are even several foundries. There's only one epitaxy wafer supplier that has a global footprint, and that is IQE. We will continue to take advantage of the strategic positioning, offer the resilient and secure supply chain to our customers, and enable us to grow our business. What have we done? A little bit of progress report.
You heard recently that we have invested in GaN capacity growth in the U.K. and in the U.S. to implement our diversification strategy, as we said earlier. This is done in coordination with our customers' engagement model and conversations we are having with the markets, okay? It is very, very important for us to put that R&D and early development capabilities in place to be able to implement the growth that we would like to do further. GaN, if you think GaN, think IQE, okay? We are strengthening our commercial engine.
We have created three business units to be able to get very close to the market and to those vertical customers that we want to engage with. We need to speak their language. We need to understand their challenges. We are building a structure that matches the one of our customers. We have hired top talent from the industry, and we are expanding our customer pipeline. We are engaged with customers from the OEMs to the foundries to the fabless, across all verticals, across all markets and all geos. From the innovation perspective, we are a technology company. Innovation is key to what we do.
We have engaged in GaN development, as I said, for power electronics, microLED. We have made some announcement in the last years, last year and months. We continue to implement our strategy of growing our wafer size from 6 in- 8 in, and from 8 in later to 12 in. This is absolutely fundamental to unlock the potential partnership with silicon foundries that have large capacities that we can tap into to grow the business. On top of that, we have raised equity recently to be able to fund our strategy and make sure that our balance sheet is healthy to be able to navigate the temporary downturn.
In summary, despite all the news and the downturn, we believe it's a temporary issue of inventory management that the industry is facing. We will manage through that. The fundamental shift in the industry are favorable to IQE. Three things: geopolitics plays in our favor. Government funding, industry funding would help fuel the industry, and the innovation trends all demand advanced compound materials. We have to realize that there is no net zero without compound semiconductors. There is no 5G without compound semiconductors, and I can go on and on and on.
We are vital to the industry and to the AI ecosystem that is forming before our eyes. We are focused on executing our strategy. As I said, we maintain our position where we are strong, and we diversify into growth market of power electronics and microLED, and we partner with new set of customers, the IDMs, the vertically integrated customers, the OEMs, as well as the foundries and the fabless. We have executed the fundraise that will allow us to really sustain the short-term cycle of the industry. Thank you very much.
Thank you, Americo. We'll now open for a Q&A session for questions submitted prior to and during today's AGM. Thank you to all of you who have submitted question in advance. We'll answer these first and then move to questions in the room and those submitted through the webcast. I will hand over. Americo and Neil will be at the front here. Uncertain.
We've got about a dozen questions that have been submitted in advance, which I'll run through now. The first one is: It was stated at the Capital Markets Day in 2022 that IQE would now also target the vertically integrated manufacturers to expand the outsourced epi wafer market. What progress has been made to persuade these manufacturers to switch to an outsourced business model?
Thank you. first of all, I think that's the right strategy. We go after the whole market. The vertically integrated market is a very important one, where I believe we provide tremendous value to these customers. As I said earlier, our global footprint allow those IDMs to get closer to their customers, to their markets. Our ability to scale fast allow them to manage their capital expenditure better. Our technology roadmap would fuel a faster innovation.
Those are three good reasons why we believe we have a fantastic value proposition for this. We are engaged. We have very good engagement with several vertically integrated players to make sure that we implement our strategy in a win-win scenario. We will make those announcement in due course.
The next question is, which acquired assets have resulted in the GBP 63 million write-down of goodwill?
I'll take that one.
Please.
First of all, I'd like to express my own warm welcome to fellow shareholders this morning. In response to the question, the impairment predominantly relates to our wireless operating segment and has arisen as a result of a reduction in sales, linked primarily to smartphone-related demand and softness in our 5G infrastructure business, which has resulted in a lower level of expected capacity utilization and profitability within that segment.
The next question is: Considering that the May 2023 placement was closed so rapidly, it must have been prepared well in consultation with the investors. What market outlook information was shared with these investors to encourage the contributions to the placement?
We followed the regulatory disclosures that the company should have followed, so.
The next question: it was stated at the Capital Markets Day 2022 that a build it and they will come approach would not be taken with new tool purchases. Have committed volume orders been secured to justify the purchase of four new tools, as was announced at the May 2023 placing?
Good question. I stand by what I said. The capacity expansion will be co-funded with our customers. We won't fund and wait for business to come. The early investment we made on GaN is really to implement our strategy in two sides. One, the R&D aspect of it, and second, the product qualification aspect of it with customers before we ramp to high volume. We have always said, when it comes to a few tools to fund our R&D or early product qualification, we would do, right? The growth in volume, we would be working with our customers to fund it.
Moving on, are the 2027 growth targets that were set out at the Capital Markets Day still achievable?
Yes, of course. Yeah, absolutely. I just showed the numbers. The total market is GBP 4.6 billion. Someone's gonna serve it, and it will be IQE.
At the last AGM and Capital Markets Day, the US CHIPS Act was mentioned, but no announcement of IQE benefiting has been made thus far. How likely is it that IQE will be helped by these subsidies?
IQE, as I said, is a global player. We have operations in the U.S., and we are going to be part of the CHIPS Act funding. As we know, the U.S. administration is working through the funding process, and we are part of it. We are you know, very closely engaged with the different agencies that are managing the process. We expect to be part of it. We will announce it in due course, at the same time, as I said, we are pleased to see the U.K. putting out their semiconductor strategy, which we hope will fund the industry really fast and not just be a strategic document.
Next question: Was former CFO Tim Pullen's departure planned? If so, has the management team targeted a specific replacement?
We don't discuss personnel change more than what was announced.
Next question: Other photonic epitaxy companies have seen a recent return of monthly revenues to comparative monthly 2022 levels. Is IQE's photonics section also seeing a similar resurgence in orders in the past six to eight weeks?
June, albeit not quite complete, has been a better month for the business, including our photonics business. The sensing part of our photonics business is characterized by a number of strong commercial relationships and customer partnerships. We're well placed to benefit from any upturn in demand in a number of key supply chains. The infrared and defense part of our photonics business has been resilient. We benefit from a number of multi-phase, multi-year engagements with a number of contracts, which customer contracts, which continue into the second half of the year.
Are IQE's clients already taking advantage of the 8-in VCSEL wafer capability?
Yes. 8 in is a very important strategy for us, right? Because what would fuel the growth of compound is the move from 6 in- 8 in and hopefully 8 in- 12 in. We have announced an 8 in VCSEL some time back. We are engaged in R&D program with several customers and design companies to take that to market.
Still on VCSELs, how is the ramping of VCSEL production for automotive progressing?
We are ramping nicely, engaged with customers. We see great pull from China market, right? It's looking really good.
Last handful of questions. On 5G, the 5G wireless rollout across India appears to be approaching. Is IQE seeing any indication of a recovery in wireless orders to support this rollout?
We hope to see the benefit at some point. At the moment, the industry is still dealing with high level of inventory, as we said, and once the inventory get consumed, I think we will benefit from that large rollout into the India space. Not only for initial product, for upgrade products subsequent to this deployment.
On litigation, can you give any updates to investors on the litigation against Tower Semiconductor?
We really can't comment on the existing case and litigation case there.
The final pre-submitted question is: What evidence do we have that Americo and his new global sales team are winning business with global companies?
That's a, that's a good one. One year plus into the company, I think we spent the first year looking at the business and really defining the strategy that we believe is very resilient and solid, right? Because strategy has to be thought through, that can sustain bumps, et cetera. Very good feedback from the customers, and from the strategy, we kind of tuned the organization to be able to implement and deliver the strategy, right? That's Phase II. You have to bring key talent into the business. We have announced a set of long-term partnership with key customers.
I think we have announced several of those already, and that is important because it tune the organization and the customer and the ecosystem of how we wanna do business, right? We wanna move from transactional relationship to long-term partnership with our key customers.
We have a very diverse pipeline. It is important to understand we are a long cycle industry, right? Those deals take time to be built, but we have a fantastic pipeline of engagement going on, and I hope to be able to announce those to investors in due course. I'm really excited with what we have done, and I'm excited with what I see ahead of us and the global industry.
That's the last of the pre-submitted questions. I think we can now go to any questions from people in the room, if there are any.
Go ahead, have your mic just so.
Chris Ruffel, investor. Do you think we're listed in the right market? The reason I ask that is it seems our big disadvantage against our Taiwanese and Chinese rivals is they can raise money a lot cheaper than us. I mean, we were recently forced to do a placement at below book value. Whereas in Taiwan and China, you know, San'an or Changelight, Lextar, they're all raising money a lot cheaper. You know, should IQE be looking at a listing in some other market where they appreciate compound semiconductors more?
That's a good question, Chris. IQE has been here for a very long time, and I think that's a question for the board to look at in due course. My role is really to focus on the business the strategy and the business, and execute really, really well. The market these days is doing its own thing, you and I know. Let me focus on the business and execute well, and we'll see.
Any more questions from the room? Okay, we don't appear to have had any questions submitted on the webcast platform itself. If there are any, then we will deal with those directly by email, but otherwise, that concludes the Q&A section.
That concludes the IQE 2023 AGM. I'd like to remind you the poll will close in five minutes, and I thank you all for your participation, both in the poll but also today. Thank you very much. Thank you.