IQE plc (IQE) Earnings Call Transcript & Summary

Welcome, everyone. Welcome to IQE's 2022 Capital Markets Day. I'm Christine Dunbar, I lead the global sales team here at IQE, and it's my great honor and great pleasure to be here welcoming you today. Welcome to all of you here in the room with me in London, and a warm welcome to all of you out there online as well. Thank you for being with us today. We really appreciate this opportunity to tell our story. Today, you're going to hear from us a vision, and we'll take you on a journey of discovery. My colleagues and I, along with some of our strategic partners will tell our vision of compound semiconductors, and how IQE is uniquely positioned to be a leader in the space as the architects of tomorrow. So I've been with IQE a short period of time, actually, just a couple of months. And I -- but I've been in the industry a long time, as many of you know, 26 years and counting, at IBM and then most recently at GlobalFoundries. And I have been watching the compound semiconductor stays from my vantage point in Silicon, and seeing that in the most important markets to mankind, and this is no exaggeration, you'll see it in the presentations today. The performance attributes that those markets and those technologies require are only going to be -- some of them are only going to be able to be met by compound semiconductors, the materials that make up that compound semiconductor family. I've been watching that, and I really decided I wanted to be a part of it and ride this wave. And I'm telling you, I can't be more excited or more happy to be here right now in this role. And what I learned having -- after joining IQE and what you're going to learn today during the course of our presentation is that not only is this market super exciting, and there's a lot of opportunity in it, and it's critical to the world, is that IQE is uniquely positioned to support. And it's from that vantage point that we bring you the presentation today, and we just can't wait to share it with you. So let me tell you or describe how we're going to tell the story today. And here is our agenda. So Americo, Rodney, Keith and Tim will all tell portions of the story from their unique vantage point. You'll also hear during the course of the presentation from some of our strategic partners, some of our most important customers, suppliers, other partners in the industry. And some of them are actually here in the room with you and some are also online, and thank you all for taking the time to be a part of this presentation and help us tell the story, and are critically important to us. At the end of the presentations, we'll have an opportunity for questions and answers. I know we actually -- I saw some of them already coming in via chat from the online session. So there'll be opportunities to continue to publish questions that way as well as take questions from the room. And that's the flow. I should mention what we're on this slide, and those of you who've been around IQE for a while, will notice right away that we have a new logo. And we love it. I'm sure you love it as well. It's bold. It's new. It signals the point in time that we are in this company, and you'll hear from us today about that. And we're unveiling it today here at Capital Markets Day. So that's our new logo. So before I hand it over to Americo, I just -- I also want to share that one of the reasons why I'm so happy and optimistic about this -- happy to be here and optimistic about this company is because of our CEO. Americo and I got to know each other, a bit at a previous company working together. And I believe he's one of the top strategic thinkers in our industry. And I'm also in awe of what he's accomplished over the course of his career. And I honestly couldn't think of anyone better to be leading this company through this exciting next phase. So with that, I'll hand it over to Americo.

Thank you, my friend. Welcome. Happy to have you. Hello, everybody. Thank you so much for joining us. I've been waiting for this moment for a long few months, okay? And I'm sure you too. So I know time is the most precious element we have. So thank you very much for prioritizing us. As well as those online and those who will be watching afterwards. I want to thank the IQE team for putting this event together. My board is here. My shareholders, large and small are here. I want to thank you guys a lot for your support, and we're going to try to share a lot of information with you today. I hope by the end of the presentation, it will all make sense. If it doesn't, feel free to ask us questions, for this is just the beginning of a long conversation we are going to have, all right? A few good reasons why we meet. One, IQE has not had a Capital Market Day for maybe four years. So it's a long time. We have a lot to say, a lot has happened. Second, it is the first Capital Market Day for the new CEO. You guys all know my friend Drew Nelson has built this company, has led it for 33 years. I think it's got the record in the books. And it's an honor and a privilege for me to take whatever Drew and his team have built, which is a fantastic base, and make something great with it with the help of everybody here, okay? Thank you so much for having dedicated so much of your life creating this company, okay? Third reason that I think is very important is the world we live in. 2022 is very, very different for this industry. Some of us have been there very long. And you may all have noticed that our work today is very, very different in many shape and form from where it was a few years ago. You all hear the news, trade tensions, geopolitics, it all boils down to us trying to decouple an ecosystem we spent 50 years to build, right? We spent 50 years to build a global semiconductor industry, out of which, good people, technology, could travel free. We used to travel the world every month, every week sometimes. And we try to decouple that at light speed. That creates tremendous opportunities for companies like IQE. We will see the regionalization of supply chain, the times where the benefits of large-scale, low-cost sites is gone. Now the new supply chain would be based on global footprint, supply security and supply resilience. That creates value for us. Second, semiconductor manufacturing has come under the spotlight. When was the last time any of us here or online heard the word chip shortage? Never before. Never before the industry understood the cost of not having wafers. We only knew the price, the quantities, the delivery time. We could not build cars because there were no chips. Car factories came to a halt. We could not get other electronic devices. That really is a very critical element to understand. I know the ecosystem is complex. They are designs. They're IPs, but the bottleneck has shown itself at the manufacturing. The amount of investment going into manufacturing, the amount of attention from political leaders going into manufacturing of CHIPS Act is unprecedented. The U.S. passed the CHIPS Act, EU, India, China, Korea and Japan, every nation has taken that issue in its hand to build a secure and resilient supply chain. The amount of investment going into that is tremendous. It's billions -- hundreds of billions of dollars going into manufacturing of not only silicon, we're going to see how the compound plays into that. The third normal is the global issues we face. Global warming and its consequences, net-zero requirements, energy crisis that we all begin to experience. I was not there before. The days where energy was cheap or free, I think we all can agree, it's gone. Therefore, we, as an industry, have the moral obligations I would even say, to come with solutions to those global issues. And that is an opportunity for us. When I look at the geopolitical issues, the need for more capacity, onshore, the global issue that require technology. There is no better days for our industry than today. They have never been asked many opportunities for us to build, to create jobs, to advance technology than we have today. So we are very excited. As we said, connectivity is no longer an option. Our industry has become vital to the world economy, would you agree. How many of you guys would leave your cell phone out for a day, a week, a month? I know only one person. I was in France few weeks ago. I was driving to a friend of mine and then one of the -- our common friends who was on the car, dropped his phone, it was Friday. And then we called his home, we said, you dropped your phone in the car. You say, I give it to me on Monday. Maybe that's the only exception. We all go around, do we have our devices? I got two. How many of you have two. Our homes are connected. Especially after COVID, that's the new normal, the way I call it in 2022. We shop online. We learn online. We eat online. We retain our cellphone line. A lot of people try to learn how to cook during the pandemic, during the lockdown. I think Uber Eats was a lot more successful than cooking classes. Everything is online, and it's going to stay that way. Leave alone the population growth in some part of the world that we're all going to be digital. I don't know if you guys realize that a continent like Africa, is 1.2 billion going to 2 billion or maybe 3 billion. The average age on the continent, I played that game last week in Asia, less than 20 years old. 1.4 billion people. That's all the next wave of consumers that need technology from us. So that's the theme, right? Manufacturing is critical. Geopolitics force for decoupling into regional supply chains with resilience. Investment public-private partnership is coming in to help solve the capacity crunch. And we, as consumers, depend on it. Our system depend on it. That's great for me at IQE. That's great for us. What are we going to do with it? Before we dive into the presentation. There are a few things I would like you guys to take away. We are going to shift our focus from technology-led to market-led. We are a technology company. And we have been doing that for 20 years. But as Christine said, I came from the business banker, and we are pivoting this company to be completely market-led, we'll show you how. The way we define value is going to change. It's no longer wafers, it's knowledge. We're going to sell knowledge in addition to wafers, through strategic partnerships with our customers. Therefore, we're going to capture value that would short our shareholders that our margin would be at the right level. We'll talk about that. And given the demand and what it takes, we will grow and scale the business. We have the right infrastructure around the world to do that as long as we implement the market-led strategy. Not everybody knows what epitaxy is including folks, my friends in the silicon space. I'll let Rodney explain the technical aspect of it because it's more qualified. But let me show you where we sit in the ecosystem of supply. It's very important because that is where innovation starts, right? We are essentially a manufacturing services company in the semiconductor space. We are no different than the other names you hear in the foundry space, right? We create value through epitaxy, which is a very complex steps where we begin to define the spec of a device, okay? The characteristics of the device. But because of what we do, we partner with every element of the ecosystem are shown on this presentation. We partner with our substrate providers, tool vendors, to define the best optimum value of epi to substrate tools. Then upstream, we partner with device makers, fabless, even OEMs because if they want to innovate at some level, that innovation start at the epitaxy. That's where the value is. So it positions us really well to understand a few things: the market dynamics, the technology trends and the acceleration of time to market; extremely important. And we serve very, very important markets that we all depends on as shown here. Now that's not enough. As I said earlier, our world economy depends on electronics, right? The entire GDP is literally supported by devices. And you get thousands of companies who build devices, phones, computers, data centers, cars, appliances, et cetera. You have less companies that build the chipset that goes into those devices. You have fewer companies who do foundries of those chips, who manufacture those chips. If I do the analogy here on the silicon world, if you need a 5-nanometer FinFET, just a very simple technical acronyms. There are two companies who know how to do it in the world, right? Same in compound manufacturing, if you don't want to build your own fab, there are two companies who do manufacturing of devices. When you fast forward to the epitaxy, there's only one global company that knows how to do it. So the problem is simple. For any customers who want to have a secure and resilient and global supply of epitaxy wafers, there are two options. They build it themselves or they can't work with us. They build it themselves or they can't work us. There isn't any third, okay? So that's how strategically positioned this company is in the ecosystem of supply chain. Now we need to go capture value for it, which is possible in this new norm. Let's look at the global industry. Semiconductor has always been a fascinating space because it has always been growing, right? But what I'm really interested in here is the current phase of growth. That's unprecedented. It's growing a lot faster than it used to. Why? Because of all the innovations, because of the megatrends that we will discuss. So the overall industry is growing. Regardless of geopolitics, regardless of recessions, regardless of supply chain that may be having some inventory -- temporary inventory issues. Overall, the industry is growing. I think it's forecasted to be a $1 trillion device-level business by the end of the decade. One may ask, what compound represent into that. So compound is really interesting because the compound at device level is growing twice faster than the semiconductor industry, which is where we are. That's where we should be, okay? Why? Because of all the trends that require compound electronics to solve. We'll talk about it later. Now when we zoom into the device and look at what our market looks like as epitaxy, even growing faster. So picture this. Semi is growing, compound is growing twice faster than semi industry, and the epitaxy piece is growing even faster than the compound device, fantastic opportunity for us. Now our new strategy, you see a box here called outsourced epitaxy. Up to now, IQE addressable market has been seen as the outsourced epitaxy market, which is [ $0.8 billion ], meaning the remaining is captive market, right? That's no longer the case. We look at our market as our addressable market now as the total epitaxy market. We'll tell you why. That immediately doubled our addressable market, and it put us north of $4 billion in five years. So that growth is fueled by things that are not been created by IQE. Those are the megatrends that we all know. 5G accelerations. Everything we do is wireless. And that wireless creates a lot of data that goes into data centers, et cetera, et cetera. So we have several structural megatrends that are fueling the demand of devices that require silicon and compound at the same time. The market is growing. Let's hear from the expert. [Presentation]

Thank you, Frank Christophe from you. So we know there's a market. We know epi has value in that market. How are we going to capture that market, right? It's a question we all have. We have a strategy that is focused on three key growth markets, right, where we will bring tremendous value to our customers through partnership. One is the smart connected devices; second, communication and infrastructure; and third, automotive for call it intelligent transportation and industrial. It's very important. So those three markets fueled the growth in compound electronics. But there are complex markets to get in for a company of our size, right? So what we do, we look at these markets, we look at the submarkets and identify key strategic capabilities that they all require, okay, and focus our energy on those capabilities and then partnership. When we look at these three growth market, they all require connectivity, smart devices to cars, to homes, to industrials, they all require connectivity. They all require efficient power management systems because energy is becoming more and more critical, and carbon footprint is becoming more and more critical. They all require sensing because sensing gives those products intelligence that they need to be able to be even more efficient. There's no safety in the car without the sensing, there is no driver's car without the sensing. Industries need sensing for defect testing improvement et cetera. And as Frank Christophe said, we need to revolutionize do display space. These four capabilities are at the core of our strategy to grow the business in those three vertical markets. How are we going to do that? Two vectors of our strategy. One, we need to maintain our position on connect and sensing, which are essentially the two markets IQE is serving today, the wireless and the sensing market. We need to maintain our position, continue to innovate, continue to capture shares. That's not enough, that's vector one. Vector two, we need to diversify. We need to diversify into high-value growth market, which are power and display. This is fundamental to our growth strategy. As we diversify, we established new business models, new value creations and new value capture, okay? So two vectors: maintain and diversify. Why those two markets? The power electronics is a very interesting one because it is a very fast-growing market. It is a demand that is there today in pretty much every part of the electronic sectors. Imagine if we have to replace every electric motors system in the world. right? There's a lot of semiconductor products. Rodney will show you some of the inefficiencies in today's power electronics market is struggling. You guys remember what LED did to the lighting industry, that's compound electronics. So power in industrial market, in automotive market. Display. Display market is a fast-growing market. It's a little bit far out, but there are many great technologies coming up. That would revolutionize the display from two vectors. One, energy efficiency and second usage model. It's easy to envision transparent displays all around us to envision your car having only displays around every window and windshield, don't watch Netflix while you drive, okay? It's not safe. But imagine the amount of display product we have on our risk, in our pocket, computers, signage, whatever. All that market is going to big change when the technology mature. It's a tremendous opportunity for compound electronics. So we'll focus on three vertical growth markets. We'll have a two-vector strategy. And our Frank Christophe says, the market is growing from 2 to 4.6 in the next five years. That's the landscape side. What does it mean for IQE? We take our revenue by 3x over the next five years. That's our target, ambitious one, but the market is there for us. This is very, very important. We believe there is tremendous amount of opportunities that are fueled by the need of what we do, the decoupling of the supply chain. And the investment made not only by government, but by private sector as well. I know there's a lot of investors in the room are listening. Yes, way to drive your revenue by 3x, but what about your margins. We target over 20% of the EBITDA margin by 2027. So 3x revenue growth. Tim will take you through the details how we're going to go with it. Okay. Now if I zoom into some of those markets, you'll remember, I said we're going to focus on three vertical growth markets, right? And they are complex markets. When we look at the smart and connected devices, it's safe to assume that every device out there would have a few capabilities embedded into them. Connectivity and sensing. Now picture is every IoT has a 5G wireless systems. And if every camera has the 3D capability embedded, every camera. How much market would that be? We'll go enable that. There are new class of devices, AR/VR, healthcare and the like that we will be able to enable with the technology that we are creating. That market extremely exciting because I don't see anywhere in the world where people are wiring lines anymore, if you see, let me know. We all go wireless. And we expect that wireless to work, high speed, low latency. What happened when our WiFi goes off at home, right? Life changes. So we'll build robust systems, high throughput systems, high reliability systems, power efficiency systems into the smart connected devices. Just to give you a flavor, where our products fit into those devices. Just an example, you can apply that to pretty much any smart connected devices. We provide power amplifier solutions, charging solutions for power efficiency, [indiscernible] will talk about it. We talk about sensing not only to do facial detection, but also world-facing cameras to unlock a whole new set of applications and usage models. And then the display that would be a revolution, not only in terms of brightness and colors and so on but in terms of efficiency. Listen from some of our customers on our existing partnerships and future market growth. [Presentation]

Two very good examples, one billion devices with zero field failure. That is called the performance. That by itself is a tagline. I don't know many in the industry who can say they are doing a bit I like what I say, let's add one, more zero to it, right? And as one chip says, that you should prove value creation where we work with fabulous companies to understand their challenges and help create the best possible solution at generally with power efficiency, better frequency and the like. So that is what IQE is best at. So all those smart connected devices create tremendous amount of data through 5G network. That data has to be transported to the core network that is also evolving as we see it today. So the amount of data you may look at the statistics is exploding. The cloud is growing at the rate of 20%, 40%, I don't know anymore, but it is a tremendous amount of opportunity for compound electronics product. Not only 5G networking infrastructure, the way we know it, but home networks are improving WiFi 6 and up as well as other type of network communications so just satellite. They all require compound electronics and what we do. And the core network, that process of data would also be evolving towards optical network at the core to be able to cope with the data grows. So that is a tremendous opportunity for our products, and we are partnering with key industry leaders in that space as well. And when we look at where our products fit into that space, we have the connectivity for 5G through again RF. We have the power to enable to reduce power consumption, those infrastructure consumed a tremendous amount of power and generate heat. So that's a very, very good market for compound electronics to go in and help solve the inefficiencies that we were able to enjoy up to now. Let's listen from one of our partners in that space. [Presentation]

Thank you, Brian. Now moving into the third market, automotive and industrials. You all know the transformation going on in that space, being EVs, being intelligent transportation, being autonomous driving. It's all rely on compound and semiconductor. The content in the car -- even though the number of cars may remain the same, the content is being multiplied by certain amount, maybe 10 or 20 moving forward. So we're going to be participating into that space. We have made some announcement early in the year. We're going to hear in a moment. This is an incredible market that has tremendous value for what we do, and we intend to play really big in the automotive market. Industrials is a very important market, as I said earlier, from the power perspective and from the sensing perspective. And when you look at where our products play, we connect cars, we power cars more efficiently. We provide them intelligence, and then all display revolution would happen in the cars. We'll be able to build flexible display. We'll be able to build transparent display technologies. I was not joking earlier when I said the windows would be displayed. There are partners working on that. So this is a very, very important market for us. And let's hear year from one of our partner on what is going on there. [Presentation]

Good partnership with Lumentum not only in 3D sensing, but also in automotive. And this is really a good testament of what IQE can deliver in terms of value. Now we have a market. We have a strategy of diversification to get into the market. We need to enhance our partnership with customers. And this is very important. In this new world, where supply chain is being disrupted. Supply security becomes essential. Companies are making critical decisions. Governments are making critical decisions. We are evolving our partnership strategy. We are working very closely with our customers on four different vectors. One, we established a deep and critical customer relationship. That's start from very early R&D phase, where we co-invest, develop technologies and bring them to market together. Second, we align our road map to our lead customer's road map. As we said, we are market-led. Therefore, there are a lot of conversations happening with key customers in from a road map alignment to do really a few things. One, to make sure that we put our knowledge base and experience together to accelerate innovation and time to market. Second, it allow us to invest on what our customers want, how as opposed to getting what the market wants. Third is allow us to fund R&D in a very collaborative way with our customers. And this is key. The third vector that is important is supply security. It's not good to have the best technology if you can manufacture in a safe place. Scale matters, supply chain security matters. So we focus a lot with our customers on how do we make sure that we provide them the secure and resilient supply chain infrastructure. And the last point that's important, more so since the chip shortage is they look at scale. Do you have the capabilities to scale when the demand comes? And that's a real question because you don't build the fab overnight. We'll show you a little of how long it takes to build and deploy a semiconductor manufacturing fab. So those four vectors are extremely important for us when we talk about partnership with our customers. And since the supply chain disruption happens, really, those conversations are happening at CEO level, right? And our commercial engine is working really hard to put those things in place and to make sure that we have strategic-level conversations. So how do we capture value? IQE has really three things -- three strategic advantages that I think I would tend to say no other competition has. We have the best technology road map in the industry. Our customers are saying it. We have the global footprint that will enable a resilient and secure supply chain, and we have the capabilities to scale. No other companies has the three. Therefore, we're going to build our value creation and value capture around those strategic advantages that we have. We'll share with you a bit about our partners. I think it's the first time we show a list of partners, some of our partners. It's very, very critical. It's not the full list, believe me. It's a good list. We have the whole ecosystem from the tool vendor to substrate to customers, et cetera, and it's very, very important because, as I said earlier, in the new normal, we engaged conversation at CEO level with our partners. By the way, I want to thank all of them for working with us, for trusting us, for collaborating with us. We will make them successful. Therefore, we are very committed. So we engage with our partners in very different ways because some companies today are making critical decisions, make versus buy. Do I build the fab or do I work with you? Do I create a technology? Or do I let you create it? Do I innovate myself or do I innovative -- there is still some who are vertically integrated, and I understand that. But at IQE we are creating a space where we can do virtual integration from R&D space. We have been doing that as well as our virtual integration from manufacturing and scaling perspective, where, at the end of the day, my goal is really very simple to make sure that no other companies need to build an epitaxy manufacturing services infrastructure, come work with. We'll do it well. we'll do it better as opposed to each of us doing it separately, and we'll make sure we establish a win-win partnership. Take a listen. [Presentation]

Two key partners working with us to develop the industry to the whole different level. One last thing before I let my colleague to present. One of the reason why we all have electronics in our homes, in our phones, in our pockets. It's because the silicon space has been able to manufacture at very large wafer size. Most know or some of you who don't know. It allows the industry to produce more and more device at lower and lower and lower cost. We at IQE plan to take the compound into that space. Compound epiwafers have been operating at lower geometry for wafer size, 16 to 150 millimeters. We believe to really fully unlock the potential of this industry, we need to go where the silicon is. 200 millimeter, and at the end, 300 millimeter compound materials. That would allow two fundamental changes. One, it would be bring compound into every product at a reasonable price point and right economy of scale, unlocking all its full potential. The second, it would drive a whole set of new innovation where we can combine silicon materials and compound materials into new class of devices. We can't do it unless we go to where the silicon is really to full potential. So we are working really hard at IQE to bring our mature platforms to that level of geometry, and we are working with many partners in the ecosystem to be able to do that because it isn't easy. Rodney will explain to you. It's not just adding 50 millimeter to a number. If you look back how much has gone into silicon, I came from silicon space myself. There is no -- every fab that are being announced or build our 300 millimeter fabs. There's no more 200 millimeter of fab being built make spend capacity for demand. But investment goes into 300 millimeter silicon fab. We want to be the pioneer of taking compound electronics from its niche to mainstream. Take a listen from one of our partners. [Presentation]

Quick partnership. Thank you. This is London. All right. One of my last side, then we're going to move on. So let me bring this all together. As I said in my introduction, we are pivoting from technology to market leadership. We will capture value at different level of partnership for what we do, and we will grow and scale to business through the two vectors I talked about, but also unlocking the full potential at a larger geometry. We will be the one to architect the new digital world of tomorrow. Thank you, everybody.

Thank you, Americo. So global megatrends, fueling performance requirements in connect, sense, power display that only compound semiconductors can met. Let that sit. And then you think about, okay, well, how does IQE ensure that we have precisely the right portfolio to take advantage of these dynamics. And I'll leave that to the good Dr. Pelzel to describe. So let me welcome to the stage our Chief Technology Officer, Dr. Rodney Pelzel.

Thank you very much, Christine. Ladies and gentlemen, it's an absolute pleasure to be here today to talk to you about our market-led innovation. I'm going to show you our technology in a way that you've never seen before. I'm going to take you through the innovation engine that allows us to architect the world of tomorrow. Now please don't worry. I promise that this will not be a science lecture. There's a few chemical symbols throughout, but bear with me, stay with me, we'll get through it together. And I want you to be on the lookout for three things. First, I'm going to tell you why epitaxy is at the core of innovation. Next, I'm going to take you through technology -- our technology portfolio, which is market led and how we are partnering with the market makers to architect our mutual success. Then I'm going to build on what Americo said about 200 millimeter epiwafers and how they unlock the potential in compound semiconductors. So let's get started. As Americo alluded to, we're in the digital world. Our world relies on semiconductors. I'm sure that's not news. They're ubiquitous. That's what this graphic is trying to tell you. They touch every single part of our lives. Compound semiconductors were much more reliant on them than we've ever been in the past. But what I don't think that people realize it. And you actually heard it from the [ Freiberger ] speaker at the end there. I don't think people realize that we're only at the beginning of this very interesting ride. I mean, most people know that compound semiconductors gave us the smartphone that what took us from the brick phones of yesteryear and brought in the smartphones that we know. And but interestingly, it's probably compound semiconductors, it's probably going to obsolete that as it condenses the functionality into my glasses or into a contact lens. And I looked at the video where the person was moving their hands in the video at the very beginning. So tapping your screen will become a thing of pass, glances and gestures and motions in the VR world will replace them. My watch here will tell me what my heart rate is might be a bit elevated right now. It will probably start telling me that I need them going for a run or I don't know if it does that because it wants me to or it's congratulating me. But smart devices are absolutely amazing. But again, we're only at the beginning. The future will absolutely do phenomenal things. They will monitor your blood looking for biomarkers. You'll get up in the morning. It will give you a readout. It will tell you if you need to go see the doctor, maybe a couple of abnormal cells were observed. Imagine what that will do for early detection. Imagine what that does for increasing life expectancy, truly amazing. You heard what they said about net-zero. There is no net-zero without compound semiconductors. And that's true. That's not an overstatement. One of the primary reasons for that is that compound semiconductors have enabled electric vehicles to give us a range so that we're now threatening the internal combustion engine. But again, that's only the beginning. The next generation of cars will drive themselves. They'll be sensing their environment. My commute time will become productive time. And I'll be safe or too because I'll take them the human element out of driving. So you can probably see I could go on holiday long, very passionate about this. But what it says is that we are at the very beginning of this. And what we know is that compound semiconductors are here, and they're going to deliver a world of more. They're going to deliver things that we haven't even probably imagined, yet. You might ask why, why is that? It's a fair question. So before I answer it, I'm going to tell you what a compound semiconductor is at a basic level, make sure we're all on the same page. So for most people, if I say semiconductor, you think of silicon because you think of your computer. So silicon is not a compound semiconductor. It's an element of semiconductor made of silicon. A compound semiconductor is made of two or more elements, hence, the name compound. And I often use CS in place, so compound semiconductors or CS. That's what I mean when I say that. So -- but those CS materials have three key attributes, three pillars, what I call innovation. The first thing that they're really good at is they're very good at transmitting and detecting at high frequency. And that's what gave us the mobile phone as we know it. That's what allowed that massive brick of the '80s to become the sleek handset of 2G, go to 3G to 4G, 5G and beyond. Those high frequency characteristics are going to allow us or do allow us to connect, and will continue to allow us to connect. The second way that they perform very well where they excel is they're optically active. That's a really fancy way of just saying they do really well at admitting and detecting light. There's a myriad of applications that use that if your phone unlocks itself with your face, compound semiconductors, the optical characteristics at work brought to you by IQE. That watch I was talking about, those wearables, again, that's doing spectroscopy on your blood. Optical properties of CS Materials at work. That's -- that driverless automobile well, it's going to have to image its environment in ultra-high resolution really better or it's not going to perform like I just said, that's going to use light-based radar and LiDAR, again, optical characteristics of CS materials, that Metaverse that we're talking about. That will be based on high resolution, very small displays based on MicroLEDs, optical properties at work. So the optical properties allow us to sense and display the world in ultra-high resolution. They allow us to have an immersive experience. And the final way that CS Materials excel is they're efficient. And that's what allows us to power the world in an eco-friendly manner. And arguably, that's the most important characteristic based on what we face as a human species. So I'm going to spend a little bit of time there and hopefully bring that to life for you. Easiest way to talk about the efficiency is to talk about LED bulbs like the ones in the ceiling here. And those have been coming into vogue for a long time, but you still get the old filament bulb. And if you were to look at the filament bulb and you were actually calibrated to it, we say, on 100-watt light bulb and we said, look, what is that in LED terms, going to be in Q or Home Depot in the U.S. pick it out -- and I would say 100-watt filament bulb is equivalent to a 13-watt LED bulb. Now I'm an engineer, we always have to add things add up. They have to make sense. So 100 does not equal 13. So where did the 87 watts go? Almost 90%, came off as heat. That's why if you take a filament bulb and you try to change it before it's been -- or you didn't turn it off recently or you turned off too recently, it'll burn your hand. That heat is tangible indicator of inefficiency. It's not just light bulbs, power supplies for your computer. Those coming into town from South Wales on the train, had plugged in my computer on the train. I was getting off at Paddington, reach down, picked up that massive brick, it's hot to the touch, almost burned my hand. If you use electronic devices, I'm sure you've probably experienced that. In fact, it's probably so common, you don't even notice it anymore. Compound semiconductors already have a solution to that problem. Don't believe me, go on to Amazon and type in gallium nitride or GaN, G-A-N, it's a compound semiconductor we will get there, typing GaN power supply and what pops up is nice sleek, small form factor power supplies that are much more efficient. They charge your devices much more quickly, about 20% more efficient. So now let's think about that. The number of -- so I'm a scientist, I actually do this for a living, and I'm using 1 of those old power supplies. How many computers around the world are using those. So imagine if we could snap our fingers and make them all GaN-based power supplies, 20% savings instantaneously. And that's why compound semiconductors are so interesting. They enable all of those things that I just described. So I've told you about compound semiconductors, and I'm going to assume that you buy in like I do. And I'm going to move on to why IQE, why does IQE win? In order to answer that, I'm going to go back to a graphic that we saw from Americo, which is about the value chain. And if you remember, he said that the value is created at the epitaxy level. We also heard that from John Christoph from Yole. So I'm going to try to again bring that to life a little bit, and I'm going to say it in a little different way. I'm going to say epitaxy is the lithography of compound semiconductors. Here went -- got into lithography now. There he goes. He's off and running. Now I'll explain it, lithography. What is it? Lithography is what allowed silicon to scale to ever smaller dimensions. It's the reason that the room full of computers that put the man on the moon, the computing power of that room full is now condensed onto my watch. Lithography did that. So lithography unlocked the full potential of silicon. Epitaxy does that for compound semiconductors. And the reason that it does it is because they're compounds. So they have a lot of very unique ways, a lot of power, a lot of ways in which I can tune them in very powerful manner. And so in order to fully unlock that, I've got to control them very, very finely at an atomic level. So if we want to demystify epitaxy just a little bit more, probably best done with an example. So it's -- the example I'll use is, let's say we're baking a layered cake. So when you bake a layered cake, you have to make sure that every single layer in that cake perfectly complements the other layers. You need to put them in the right proportion. You need to put them in the right location. So that you get a cake that tastes as you desire in the end. So in that analogy, IQE is the baker. The cake is -- or the baking process is epitaxy, the layers in the cake are our materials that we use that we put together in a very specific way in the right ratio and the right purities. And so in the end, we put them together so that they perfectly complement each other so that we have the best product, the best end product in the end. So unlike the cake that you make in your kitchen, ours are much more complicated. Our layer stacks are up to 400 layers thick, and they're controlled on an atomic level. So they're actually much thinner, a lot more layers in the cake. But if you went and looked at the process that we used to create our epi, you would see that they sound almost like baking a cake, temperature, materials, so the ingredients and the recipe, the time, how long did you bake it for. Now we control them much more finely, but yes, they're very similar. So just like if you have an oven at home or at least if you're me, and you have an oven, just because I've got an oven doesn't mean that I'm going to go win the Great British Bake-off. Therefore, not every person that does epitaxy or has an epi machine is a champion. We've been doing it longer than anybody, 30-plus years, and we've been on the forefront. So we believe that we are the best at doing epi. Now I've known this, IQE has known this. I'm expecting that you now have a new appreciation for it. Our customers absolutely know it, and their customers know it. And for that reason, we don't interact with the supply chain in that linear fashion that you saw before. We interact where we're at the center of innovation. We interface with every single part of the supply chain. Why is that? Well, it's because -- what we do underpins success or failure. If we don't get it right, the device won't work. Conversely, if we're able to put in some of our magic, we can get things to work that you never thought might work. We define success or failure at the very beginning. And so because of that, we are starting to hear -- we're starting to think about those partnerships that we were just talking about. Now we've always partnered, but we're starting to partner in a much different way. So you heard Americo say, we're not selling wafers anymore. We're selling, what I would say, is success. We're selling milestones to our customers. And we're engaging so that we can extract value much sooner. And part of that is we've now rebadged our original headquarters, the IQE Europe site in Cardiff Wales. Yes, it was named before Brexit apparently. The IQE Europe site in Wales has now become the R&D center. And it is now the flagship for innovation in the group. So it is going to be the place that creates the processes that are ported into the sites that Keith will tell you about later, our volume manufacturing sites. It is also the place where we will engage with these partners in a market-led manner, where we will engage at a very fundamental level. shifting that business model to selling success as opposed to selling wafers. When you do that and when you use the absolute powerful position, the unique position we have in the supply chain to understand what customers need, from every perspective. When you innovate, you're able to create something that's absolutely pulled by the market. The market will reach out and grab it and pull it all the way through. And market pull is what we mean by market led. You're directly addressing a challenge that the market has. Now IQE has done that for many years, but it's also had some market push as well. Market push would be creating an innovative solution, pushing it to the market, looking for a problem to solve. So with this new model, where we are reaching out more pull -- we're reaching out with our customers to pull solutions through the supply chain. In so doing, we're shifting all the way over to the right here, which would be full market pull. And that allows us to better capture value because it's linked to an immediate need, and therefore, things get a lot more predictable. In the past, we had a little bit of market push, which is less likely or less predictable. You're anticipating a market need, you don't have as much visibility, and therefore, you limit your value capture. So this is the way in which we are operating as IQE. And so I'm going to take you through our -- one of our newest areas that Americo's already talked about, which is MicroLEDs. You would have heard this year that we're entering the MicroLED market. We announced partnerships with Porotech. We announced partnerships with MICLEDI. Let's hear what one of those partners, MICLEDI has to say about the interaction with IQE. [Presentation]

So Lars certainly says it even better than I can. So enough said, we are very excited about going into the MicroLED market. And we are -- like I said, we're partnering in ways that we've never done before. We're partnering in ways that will allow us to really reach out and capture that value. So you now understand what I mean by market led. You understand what our philosophy is about going in and creating and engaging in innovation. Let's look under the hood a little bit in terms of how we create that innovation. So in order to create the innovation, you need to have materials or technology portfolio or a toolkit of technologies. And IQE has the broadest and deepest technology portfolio in the industry hands down. It consists of 5 material platforms that are shown up on the screen here. Don't worry about what they're called. There are 5 distinct material types that have key different characteristics that enable us to innovate. We also have in our portfolio, all of the relevant epitaxy techniques, scaled. Again, don't worry about epitaxy techniques or what they're called, think of them as different types of ovens that bake your cake. So we take all of these 5 material platforms with those technology, our epitaxy platforms, and we create solutions that directly intersect with those application areas of connect, sense, power and display. And we've been doing this for 30-plus years. So that has given us a very powerful view. It's also given us an unprecedented amount of IP in intellectual property. So that would consist of trade secrets that would consist of know-how and would consist of patents. So let's look at the patent part of that. And what you can see is that it's a very respectable patent portfolio. In the lower left-hand corner, you see what the composition of it is, it covers all of the parts of our business. And going forward, we will start to favor the emerging parts, the display and power, as you might expect. If you look at it in comparison to our competitors, as I've shown in the upper right-hand corner, we certainly have quite a few more, at least double the patents that they do or at least the first competitor. But it's not just numbers. We also have the best quality, and we use citations to tell us that. You see we have lots of citations people want to know what we're doing. And we certainly have 4x that of the nearest competitor. So the best materials platforms supported or protected by the leading patent portfolio. So let's bring that full circle. Let's take those 5 material platforms that I showed you. And let's see where they intersect the market verticals of smart connected devices, communications infrastructure and automotive and industrial. And that's the view that we get now you can really begin to see the power. Just look at one of them, gallium nitride, and let's zoom in on that. And what you can see is the same material can crossover verticals. So the same material inherently diversifies your business and you're able to leverage what you learn from one to apply to the other. Very, very powerful position. Let's go into a little bit more detail on GaN because it will give you an idea of how we do this. The paradigm that we use. Same for all materials, I'm going to use GaN as an example. So why am I telling about GaN well because it's extremely versatile, very, very exciting material. So GaN underpins our business today and will create waves of innovation going forward. So if I look at those connect properties, those high-frequency properties we talked about, but I can see is that immediately today intersects the communications and infrastructure vertical, it's used in base stations. IQE has a very strong position in that. We do believe, and you'll hear from one of our partners that GaN will make it into handsets and then it will intersect the smart connected devices vertical. So if we look at that market, it's there today. It's about USD 724 million total device market according to Yol. Today, growing at a reasonable clip so that by 2027, it's predicted to be $1.4 billion. So it's a market that's there. We have a portion of that market, and it's growing into the future. If I move over to the power characteristics. So that's part of the efficiency, but GaN also has a very high breakdown voltage, and it also performs very well at elevated temperatures. So great power material. And we already know that it intersects with power supplies because I told you that story earlier, so it intersects the smart connected devices already, and it's starting to make it into automotive. So that's the first time we've seen that vertical on the screen. Smaller markets today, about USD 182 million, growing at a faster rate, about 50% so that is predicted by Yol to be equivalent to connect by 2027. But we're not done. Let's go back to those optical properties. So GaN will emit red, blue and green light, you can tune it to do that. That's the trifecta. The moment you get all 3 of those, you can make any color, including those bright lights in the back that are white and blinding me right now. So this will allow LEDs to go into smart connected devices, the ideal solution for that. Very high resolution screen, say, on a watch or some type of wearable that is extremely efficient. Also, we'll go into automotive and industrial. Again, logical reason. You're trying to conserve as much battery as possible, you don't want to display chewing things up. Now that's a nascent market day, very small, 7.3 million today, but growing at a much more rapid clip, roughly 158% CAGR up to about 834 predicted by 2027. And now you begin to understand the power and the excitement. You have a material that underpins your business today, very strong business, very strategic position that's growing. But then tomorrow, you've got the power market. And the day after that, you've got the display market, very powerful. Now you've probably guessed, I saved a little bit. It's not quite that easy because all the GaN that is in there isn't created quite equally. Using my analogy from before, let's say, GaN is chocolate. Well, it's a different type of chocolate, different recipe for each. You've got milk chocolate, you've got Belgian chocolate and let's say you've got dark chocolate. So they're not the same. And we believe that IQE is the only 1 that can address all 3 of those markets. And so for that reason, when you're thinking about GaN, you're thinking about IQE. But don't just take my word for it. Let's listen to some of what our partners in GaN have to say about it. [Presentation]

So that's some great messages from some great partners at Global, Julio and Peter at SK Siltron. If you noticed, he said the world needs GaN, he said it twice. So based on what I just said, the world needs IQE because when you're thinking of GaN, you're thinking of IQE. So we've got the best technology, got a really sound strategy, how we're going to go extract value, but it's not enough. And you heard Americo talk about it not enough. The way I would phrase it is you need to put the wafers put your product in a way in a form factor that the markets can use. And that happens to be 200-millimeter because that's the language of the specialty foundries that enables you to unlock that significant capacity from those foundries. And earlier this year, we released a press release on our first commercial available 200-millimeter VCSEL wafer, very excited about that. And as Americo said, you might just think of it as, well, that's 50 millimeters more, how much is that really in a couple of inches. So the only equation, there's only one in the talk is to remind you that the area of the circle goes like the radius squared. And so when you compute that, you nearly double the number of devices on that wafer. So it is very significant. Also, keep in mind that scaling isn't something that we're just brand new to. We've been doing this for our entire history. In fact, when I started at IQE in the U.S.A. at our Pennsylvania site as a production engineer in the year 2000, one of the first things that I did was scale 100 millimeters to 150 millimeters for pHEMT. Fast-forward 15, 16 years later, I had the privilege of leading the team that scaled 100-millimeter VCSELs to 150-millimeter VCSELs. And that's what allowed the consumer launch of facial recognition for mobile handsets. If we hadn't done that, that wouldn't have made any commercial sense. It wouldn't have happened. And I was actually thinking about when writing this presentation. the number of people that told us we were crazy that we were wasting our money that it wasn't going to work. Now it's taken for granted. So we've gone to the next node, 200 millimeters. And we've leveraged that pedigree, that 30-year pedigree in scaling to do that. Now Americo said it is complicated. It is very complicated. In fact, going to 200-millimeter is extremely complicated. And we are in a position to understand that complication like no other. We looked at that problem as a problem statement, just as a thought experiment, and we immediately knew that's not going to work. That wafer is going to have a lot of problems. So let's just reengineer it down at the foundation. We'll put it on a different substrate. And that's what we did. We identified that solution probably faster than most people who haven't even seen it as a problem. And we have a road map for scaling for all of our materials, ultimately to 200 and 300 millimeters. You're going to tell -- ask me, well, when is that all going to happen? And if I told you, I would be lying to you because the market doesn't know. When the market tells me, and it will, we'll probably know more sooner than most, we'll go there. And we'll go there in force, and we'll grab hold of it and pull it through the market. So I think it's about time for a break. We've been sitting here for a while. So let me summarize what I've told you. So first of all, told you about compound semiconductors and epitaxy and told you that that's absolutely necessary for technology innovation going forward. I've taken you through our market-led deployment of our best-in-class technology that ensures rapid value capture. Finally, I've talked to you about scaling it to larger wafer diameters, which brings that into the mainstream. It allows us to make our technology with the best silicon-based technology to create some phenomenal innovation. So in closing, I just want to remind everybody, we are on just the beginning of a really, really exciting journey of innovation. And I think all that we can do at this point is buckle up and enjoy that ride. Thank you very much.

Thank you, Rodney, and you nailed it, a PhD was not required to understand that presentation, which actually is incredible when you think about the dozens, hundreds of PhDs that the work that you described represents. So -- and everyone knows that like one of the hardest things to do is to tell a complicated technical story in a simple way, and you nailed it. So thank you very much. You also made us hungry. So we're going to take a break now and get a coffee or what have you, 15 minutes. And then we'll return and Keith Anderson will take the stage, our COO and followed by Tim Pullen, our CFO; and followed by an opportunity for Q&A. So we'll take 15 minutes here and online, and we'll see you soon. [Break]

Welcome back, everyone. So we're heading into part 2 of this event, and I'm really excited to introduce the next our Chief Operating Officer. Keith Anderson, he's going to be taking us through sort of where the magic happens, our factories and particularly our high-volume manufacturing facilities. And it's a really exciting transformation story. And I'll hand it over to Keith to tell you the rest.

Welcome back, everybody, and what a phenomenal story that Americo and Rodney shared, it really is very compelling. And I hope you're sitting there and listened to it and I knew what was coming. It was still exciting, and it still raises the hairs in the back of my neck, and I hope it did the same for you. My name is Keith Anderson, and I have responsibility for our global sites to deliver scale and along with Rodney to deliver the world class epitaxy that you've heard about. I'm sure you've noticed the Irish accept. It's a Northern Irish accent to be really specific in the room. And it's 1 of 4 that you've heard about -- or heard today and hearing. Tim will round it off with his English accent. He has lovely English accent. I joined IQE 4 years ago. And I was compelled and it really is one person's fault, and that's Rodney. Back then, he used an awful lot more chemical symbols. He used an awful lot more jargon, but in my word, he represented the sort of the apex of our unbelievable talent that we have with regards to epitaxy engineering in our company. Previously in my earlier part of my career, as part of the aerospace industry. And in that area, we had complex engineered products, scaling for growth and very demanding customers that expect the very best. I delivered then, along with Rodney and my team, we will deliver again. We are transforming a place to standardize, centralize and scale. We are the only global pure-play epitaxy provider, which gives us that supply chain resilience that Americo spoke to powerfully about. And we are ready with the facilities and expertise right here and right now. Our very strong IQE heritage that Americo spoke about positions us phenomenally well. On the chart, we have 4 of our key volume sites. And I'll go into more detail on that. But before I speak to them, Rodney talked about our new R&D center, and we have a few other sites that I would want to mention. We have our substrate facilities in Milton Keynes and wafer tech in Galaxy, we provide deeply complex solutions to the industry. And we have our silicon facility co-located in Cardiff that is working on the advanced silicon epi that Rodney spoke about. Our unique global facilities, positioned across the 3 continents, deliver us that opportunity right here and right now to scale. Newport, Massachusetts, North Carolina and Taiwan, all have those 2 -- are combined to have the 2 platforms of MOCVD and MBE. We're positioned right now to scale. Without putting the spade in the ground and within our 4 strategic sites, we can deliver 3x the capacity growth in the next several years. Everything that you've heard about with the opportunity we have a unique first-mover position on. To give you some direction on that capacity, and to kind of point to exactly how that looks. We've created this chart and this illustration of outlooks. Taiwan, you've heard about quite a bit of investment in the last few years, positioning for the wireless growth that we talked about. North Carolina, our Champion MBE site is positioned, Massachusetts, the partner to wireless in Taiwan is positioned. It's also our center of GaN expertise as it currently stands, and we can double our capacity there. And Newport, our MEGA Foundry, which you've heard from a number of our suppliers about is really quite an outstanding achievement of IQE. 30 years of IQE Engineering and deep expertise has gone into the manufacturer of the world's most advanced epitaxy facility. Not only have we delivered Rodney and I, those VCSELs that Ty talked about, but we have the ability to scale in a very controlled, deliberate and reliable fashion in this outstanding facility. We've been working very hard in the last several months as Americo was onboarded to be ready to mobilize to ready as that customer pull comes through as Rodney and our sales team developed those strong partnerships, we're ready to go. If we started and we wanted to put a spade in the ground, it would be 24 months before we're ready to install and to fit the clean room, another 6 to 12 months before ready for reactor and customer qualification, that is a significant time line, which we don't need to think about just yet. IQE, per the group that you're hearing about today, is positioned in that 12- to 24-month time frame to be able to scale. We are ready and we're mobilized. Our engineering teams, our site teams, are positioned and are waiting and ready to go. Let's hear about -- let's hear from Julio, who Rodney, Christine and I met a few weeks ago in Newport. [Presentation]

Thank you, Julio. I know a number of you have been to Newport, and we've helped you understand the facility. And we really do have that cut and paste approach. The engineering that we've got there, the way that we've done it, the way it positions us is to know exactly what we need to do next, what time it would take, how long it takes to implement, we really are in a very good position. So in terms of thinking about transforming our operating model, there's things that we've done. There's things that we're doing and there's things that we're going to do. We talked about the sites that we have. And what we've been doing in the last several years is thinking about how do we optimize our strategic footprint. With my lens, how do we take down the cost base and average that strategic site to give us that volume. We announced the movement of the business from Pennsylvania to North Carolina and the combination of 2 fantastic sites and teams into one site. Right now it's the movement of the business from Singapore to Taiwan last November, and we completed that journey in June, and we were delivering first qualification wafers this month. We've done that. With Pennsylvania, we expect next year towards the end of the year, we're bang on track to deliver the fusion of those 2 great sites into 1 world-class MBE facility. In terms of our site-focused execution, that's where we've been, and we've been outstanding at it, outstanding at it. Within 3 to 5 years' time, as we really scale, we have to have a centralized standardized model in order to absolutely guarantee the execution that you've heard about today. As we go to 3x, that challenge of being perfect becomes tougher. And the only way to deliver that is to be standardized and centralized. To support that, we've been working on the delivery of a single integrated manufacturing system. This time last year, we announced a partnership with Critical Manufacturing, one of the world's best and leading MES providers. We are on track and ready to deliver that system to our first 2 sites in Q1 of next year. When that comes together across the world, it really is going to be a very powerful solution. I visited Taiwan for the first time in 2.5 years, about 8 weeks ago. It was great to be part of the team. It's great to see them. It's great to be there on the ground. Whilst I was there, I visited 2 automation companies from the silicon industry, and I saw the future. It was really, really -- excuse the sort of boyish expression, but I was really excited. We're building those concepts now. We're actively working on what a light side non wafer handling solution looks like for IQE. Standardizing road map. Think -- sort of taking the complex and representing the work that we're doing. I was kind of thinking about -- we've got some of our management team in the left here. And these 3 simple things represent the work of hundreds of people. And it's really quite humbling to try and get that across as to the skill of the hard work that we're all involved in and these guys are involved in order to deliver this. Systems improved success. We're working to build one solution to power Rodney's R&D, we call that LMI and LM2 and 1 solution to power the LM5 really high-volume solutions. Manufacturing intelligence. Rodney didn't go into it, and it's a topic for another day because both of us could talk about it for a very long time, is the amount of data, Phil would call it big data. And we're connecting that information not only from the customer fab, but also into our own characterization back into the monitoring of our production back into the FDC that is becoming the working with [indiscernible]. And the connectivity of that and we've got some of the best data analysts in the industry. And we see that as a real value add to what we're going to be able to offer to our customer. One of the ways that we delivered perfect VCSELs for Ty's output was because we connected with them at a level that we haven't done previously with other customers. Rodney's -- the trust that we have with that partner and the integration of that data with our data streams meant that we will deliver perfectly. And finally, automation, more I talk about in terms of that vision of how we siliconize are in each of the industry. We've got that road map laid out. We've done some of it. We're doing others, and we're going to get to other pieces of it. It's our collective vision that this really supports our play in the current captive market, being able to say that we are virtually vertically integrated. And that is a company we can potentially plug in to your manufacturing system is a very powerful play. As we've executed the delivery to the supply chain, been robust, high quality. And as I've indicated, we've also been changing. Pennsylvania site full of phenomenal people and phenomenal talent, we are fusing with North Carolina. Singapore site with an incredible legacy and a great customer base, we've moved that business to Taiwan. We've moved from autonomous acquired sites, and we're in the process of moving to the strategic manufacturing sites and the volume sites that you see on the wall. Beyond that, we're now starting the journey on matrixing our organization, centralizing our functions such that we do 1 thing, 1 thing we'll need that is 1 standard for IQE. All of HR, all of finance, centrally reporting, ensuring that as we scale, we're robust and we're able to execute. It's my vision that those things in combination give us the execution engine that we will require to execute at scale. That repetitive and robust product control that ensures we retain the reputation that we have gained and that we deliver the revenue that Americo and Tim have talked about. That high quality, that high volume and a high-margin output of a manufacturing system powered by great technology. One of our partners in this, key partners in this is AIXTRON. And Felix is going to talk to us now. [Presentation]

Thanks, Felix. We've got to know -- I've got to know Felix really well over the last year, and that's because we're working intensely on 3 deliberate factors. Rodney spoke about it, Americo spoke about it, and that is the scaling of the wafer. That wafer scaling is critical for our penetration into the broader market as Americo's talked about. Secondly is improved productivity, improved yield. We must and we are continue to challenge ourselves every year on improving year-on-year. And the third is ensuring that our partners are ready for scale as well. That is we come calling for those reactors that they're ready to position and power us to growth. Felix is a great partner, and we're very thankful for it. We've got -- and I think Christine said it. I think I recognize a powerful vision when it's simply said. Americo said some very simple but powerful words, Rodney as well. We've talked about centralized standard -- centralized standardizing scale within operations. But this is a team sport. And along with the outstanding heritage that actually has the effort of Rodney and his team and the product, we started to add new people, new competence like Christine. With safety, we have a new Group Safety Director, have a new interim Chief People Officer, Quality Director and sustainability is a new strategy that we announced in June of this year. Each of those areas has a very specific strategy laid out for the next 3 to 5 years, which complements the scaling strategy that is designed to support and accelerate it and ensure that our robust execution isn't threatened. I could talk about these. We've talked about them for days and days and days. And there's a huge amount of work here, which I'm very proud of. I'm very proud for some of these guys in the room to hear the story. It's exciting, and we have these base enablers of scale ready to go. Tim Bishop, our Group Director, Supply Chain is in the room. He's been here for a few years more than me, but he has laid the foundation for our supply chain in terms of having the resilience, security and the responsibility, all in place. It takes a lot of work with the global tensions and the situations that we've got, COVID, the inflation, the geopolitical it takes a lot of work every day underneath the 3-year strategy to ensure that we remain perfectly executing, thanks, Tim. Let's hear from Sumitomo, one of those strategic partnerships. [Presentation]

Thank you, [indiscernible]. Another one of our great partners, who's taken the time to articulate the partnerships we are building and have built within IQE. Being the perfect Northern-Irish guy, I'm kind of looking forward to about 30 or 40 minutes from now when we advance it on your really tough questions. And we get to the drinks reception. And you can ask me some medium tough ones, remember I am not being flanked by Tim protecting me, I'm giving you the deeply insightful answer. Sorry, Tim. A summary then. We're the only global pure-play epitaxy provider. We're ready with the expertise and the facilities to execute. But we're also transforming at PS to standardize, centralize and scale to underpin the success that we're going to have in the next 5 years. Thank you.

Amazing. Thank you, Keith. So as Keith mentioned, we had the pleasure of hosting Dr. Costa from GLOBAL FOUNDRIES at our Newport facility, Rodney, Keith and I early in October. And so I've been in the semiconductor industry a long time, I visited -- I was trying to count -- I don't know how many factories, but dozens of factories over the course of those 26 years, 200-millimeter fabs, 300-millimeter fabs, OSAT facilities, photomask manufacturing facility, and now epitaxy factories. And I've only had -- the feeling that I had walking into Newport last month, I've only had 1 other time in my life. And that was the first time I visited a 300-millimeter fab. It happened to be the IBM East Fishkill facility, 20 years ago-ish. And that was this feeling of like, wow, this is different, this is amazing, something big is going to happen here. And this is going to be a factory that's changing the industry. So I know several of you have been to the factory already, and we invite you all to come visit. I'm sure you'll have the same sense of awe. Okay. So rounding us out here and with the punch line, so to speak, is what this all means for our numbers. So let me introduce our Chief Financial Officer, Tim Pullen.

Good afternoon, everyone. Now for the business end of the presentation, I guess. So we've heard today already from Americo about that fantastic market opportunity ahead of us. We've heard from Rodney Pelzel, who has told us about how we're bringing market-led innovation to capitalize on that opportunity. And we've heard from Keith Anderson as to how we've got the world-class facilities to deliver those wafers to the market. I'm going to talk to you about our financial vision what that means for our business. . So we're going to talk about growth, how we're going to deliver 3x in revenue by 2027. I'm going to talk to you about margin expansion, how we're going to deliver industry levels of profitability by working with a new commercial operating model. And how we're going to work with our customers to make IQE the champion of the epiwafer industry. But before I do that, I want to return to some of the complex challenges that Americo talked about, but put the CFO lens on it. So you can see the issues on the screen here that we're all faced with in the world today. And after a couple of years of pandemic, there's nothing ascertain at the moment as uncertainty. There's risk everywhere we look around this chart. That's something that we've grown used to dealing with. We're navigating this environment in the way that we manage our business. And in fact, the compound semiconductor supply chain has proved incredibly resilient in dealing with these issues. Strong communication up and down the chain, pragmatic decision-making to keep the supply chain sustainable and business continuity going. And actually, it's in the DNA of the semiconductor industry to be able to adapt to this industry. Keith talked about driving that productivity in the industry. That's critical. That's happened in the silicon space over decades, and it's something that will happen in the compound semiconductor space as we mature the industry. And that means that even in an inflationary environment, we're able to drive value. Yes, we'll increase prices if we need to, and there are examples of where that's happened this year, where the cost inputs have gone up. But in the main, we'll be driving the productivity that will offset the effects of inflation. And then more than that, semiconductors will provide the growth that will actually offset some of these challenges because the macro trends of the semiconductor and the technology industry -- the answer, as we've heard today to some of the problems that we see in the world. And certainly, when we think about compound semiconductors, they're probably the answer to the most biggest problem that we have, which is that net-zero target. So a tough world, but one in which we think the macro trends will actually be reinforced and accelerate, and we'll manage with the financial discipline to make sure that IQE is well placed to execute and deliver on our revenue growth. So let's talk about how we're going to do this. Much has been said before about the inflection in the compound semiconductor world and demand for compound semiconductors. Now we're not going to wait for that inflection. We're shifting from market takers to market makers. We're going to grab hold of that inflection point and pull it towards us. With our new transformed commercial model, will explain how we're going to capture the value that we bring to the most important supply chains in the world, whether they be smartphone handsets, telecommunications infrastructure or things like aerospace and security applications. I'll also explain how we're going to tackle outsourcing, how we're going to tap into the captive supply of some of the world's biggest semiconductor companies, and how we'll solve some of the problems of expansion that they faced. And all of this will result in, what I call, strategic capacity expansion. Now this is really important because if you think about those macro trends, there's huge opportunity that we're talking about, the massive increase in compound semiconductor demand, where is it all going to be made? Is there the capacity of epitaxy production today to meet that? No. How is it going to be put in place? Now this isn't about how you purchase wafers. It's not a purchasing level issue. It's not a technology level issue. It's a CEO and board-level issue. How am I going to get that strategic supply? Americo has already talked about. How we have understood the cost of not having that supply. We've seen that now our CEOs of the industry, the boards, they understand what their problems are. So the time is right to have that conversation about putting in place the strategic capacity the industry needs, and that's how we're going to grab hold of that inflection point and pull it toward us. So let's go into detail a bit more. Our commercial model, we're shifting, transforming our commercial model as we are other aspects of the business towards strategic long-term agreements. IQE has a deep heritage as we've heard today, huge expertise that is unique in the world. We've always added value up and down supply chains. What we need to do now is make sure that we're capturing that value and capturing it in a way that's mutually beneficial for both ourselves and our customers. And we can do that through strategic long-term partnership. That means long-term commitments from IQE to put capacity in, to bring leading-edge technologies to market to our customers, but reciprocal commitment as well long term from our customers for volume or share. And together then we can invest -- we can co-invest for that strategic capacity expansion that we talked about. And through the collaborative market-led R&D that Rodney spoke about, we'll be able to accelerate those products through to market to fill that capacity that we're talking about here. So what are the benefits of that? It may be obvious, right? To really unlock the benefits, we combine it with our commercial engine. So Americo has talked about this before. We're really super chartering here. People like Christine coming in from the industry, more industry knowledge, more customer centricity, more customer collaboration and importantly, 3x customer engagement. Now people ask me, how do you measure that, Tim, right? This isn't a number I can report in the financial statements. But what I can say is, compared to a year ago, I can definitely see, at least, 3x customer engagement in quantity, but also in quality at the C level of our industry, which is really important when we're thinking about how the big decisions on that capacity are going to be made. So that commercial engine that we're building, together with the transformed commercial model, will result in more consistent growth, improved visibility, stronger returns on investment and higher profitability for the group, which is something I'll return to in a moment as well. So why would the big semiconductor players outsource epitaxy to IQE? It's a good question. In any big business decision like that, there's going to be push factors, it's going to be pull factors as well. If you look at the semiconductor world at the moment, IQE is the only global pure-play epitaxy provider, as we've explained. We have spot competitors in parts of the market. They tend to be in one geography, probably single site with a limited technology breadth compared to what we do. We also have epitaxy performed by some of the vertically integrated players in the world. The Boards and the CEOs of those companies are facing some of these push factors. If the specialist field of epitaxy is not your core competency, if you're performing that activity in a special constrained area within a corner of your foundry, if you haven't got access to the leading-edge technology that we've got in our team, if you don't have a road map to scale to 200- and 300-millimeter, then as the CEO or the Board of that company, what you face is that make or buy decision. Are you going to invest in that epitaxy capability, potentially build a greenfield site, hire the people, develop the expertise when you've only got yourself as a customer to serve them? Or are you going to outsource to the world leader to IQE, that's the push. Here's the pull. This is our business model for outsourcing. So we've talked about long-term agreements that reciprocity in commitment from both sides that allows us to co-invest and put the capacity in that gives you that supply chain security. Economies of scale. In any outsourcing decision, this is going to be critical. Now let's talk about the economics of the compound semiconductor industry. It's not about the cost of the wafer that IQE produce. It's about the cost of the chip that our customers produce. So at IQE, we have the world's leading quality of epiwafers. Thanks to my colleagues at over here. That means that we can produce wafers that have superior yield, superior area and specification. And for our customers, that means that for any given number of chips they want to produce, they're using less wafers. They're putting fewer wafers down their line, and that means that they have lower OpEx and a lower capital intensity. So it's all about the cost of the chip, not about the cost of the wafer. We will be able to drive that economies of scale for them, and we'll be able to multiply that effect through the standardization journey that Keith outlined for us. In the silicon world, you can see that. You can see how the scaling and the standardization over time, as well as access to leading technology has led to a huge outsourcing in manufacturing. The same will happen in compound semiconductors with IQE shaping how that looks. And if you're not already convinced that's going to drive economies of scale, they just layer on top the move to 200-and 300-millimeter wafers, which as we've described are a huge step change in the economies that are possible. So a very compelling financial argument. There's also 3 continent operations, and we can't underestimate that in today's world. We can deliver wafers, manufacture wafers, develop IP, protect IP in any region, 3 major continents of technology that our customers choose. We're operating with close proximity to those customers so we can enable the close collaboration. And that will give us the broadest market access, but it offers an advantage to our customers. All of this provides a business case, but there are still objections to outsourcing. So how Tim about margin stacking or the inefficiencies of interfaces? Well, this is where our business model provides a counter to those objections. The virtual vertical research and development and operational integration that Keith and Rodney have articulated so well allows us to plug into those customers and counter that efficiency argument. So transformed commercial model together with that outsourcing operating model. What does it all mean in terms of numbers? Well, let's just return to the market briefly so we can remind ourselves of the size of the pie. We're playing in a GBP 0.8 billion outsourced epiwafer market at the moment. By moving into that captive space, that outsourcing space, we can overnight double our addressable market to GBP 1.7 billion today. And then that market is going to grow over 20% CAGR to GBP 4.6 billion by 2027, as we've heard. So a big market for us to go and play. And because of that, we're signing up to a target, as you've heard today, of 3x in 5 years. That's a compound annual growth rate of 25% faster than the market growth. And it gives us a business the size of $650 million or so by 2027. We've got the technical expertise to do it. We've got the facilities in which we can do it to scaling 3x within the 4 walls that we have. And we have a diversification strategy that will give us the broadest access to that market. Our current business, Connect, Wireless, Sense or Photonics together with the diversification strategy into power and MicroLED display that will give us product, market and customer diversification and enhance the resilience of the business. So let's dig into a bit more detail. Let's explore each of those 4 areas a bit more. Americo asked the question earlier, what happens when your Wi-Fi goes down? I can tell you what happens in my house. I'll find out about it in about 60 seconds flat from my kids, probably quicker than I would if the central heating went down, right? And that's because we all expect to be connected all of the time, certainly, my kids do. There is an insatiable demand for this. It's not just about your smartphones. It's about all manner of devices. Everything is going to be connected in the future. And that means this market continues to grow through 5G, through 6G and future networks. We see continued growth, both on the handset side and the infrastructure side, and we believe we can grow a 15% CAGR and enjoy a circa 20% market share in 2027. Sensing, IQE has a deep heritage here, the best technology solutions that have enabled us to carve out and then maintain the leading position in advanced sensing solutions at the top end of the market, the high value end of the market. These will continue to evolve. And as we look at the future market, we see really exciting things, as we've talked about today, like health care sensing and LiDAR, which to be honest, are quite frankly, game-changing for the human race let alone for IQE. We see we can grow at 15% CAGR here as well and enjoy circa 20% market share in 2027. We've talked about entering the power market. This is probably the most attractive market in compound semiconductors over the next 5 years. Here, the market is probably about half of that existing market today in terms of epiwafer production, and it's forecast to grow at around 30% CAGR over the next 5 years. So we think we can enter this market, not through small projects. This is a big industry power. It's dominated by economies of scale. And so here, our strategy is to enter through strategic partnerships. We've announced one of those already as Keith and Rodney -- you've heard from them today of how we'll work together in this market. And there's a pipeline of further opportunities for us here as well. We think we can take 10% market share by 2027. And then we've got, last but not least, MicroLED displays. This is a really exciting technology, right? Not only does it offer the potential for the brightest, most clear display technologies that will proliferate from our small screens on our wrists to the big screens behind us. But it offers power efficiency, which feeds into that net-zero ambition. And here, we've got proof point of our new commercial model already in action. So Rodney talked about how we capture value in a way that's mutually beneficial for ourselves and our customers? How we look at the milestones associated with scaling, developing our technologies, not just the wafers that we're supplying. And so that's why even though this is a new technology where the standards haven't been set, we have revenues today. And that's because we aren't going to bet big on which technology will win. We will work with several players out there to help them develop and scale their technologies and bring them through to market. Beyond that, we see then a mass production opportunity, and that's why we see that we can take over 20% market share of a market that could be GBP 0.25 billion or even bigger depending on adoption rates of MicroLEDs over the next few years. So 4 really exciting areas. When we bring it all back together, you see this a larger, more resilient, more profitable business with a broader portfolio. So laying the foundations for growth. You're all asking me so, Tim, when is it going to happen, right? Can we enjoy this next week? Well, these strategies take a bit of time. Americo talked to us in March, a couple of months into the job and articulated how he's going to lay the platform for growth. And today, you've heard some of that from Rodney, from Keith, from myself, how we're changing, transforming, evolving our business into this new way of doing things. That's well underway. That gives us the ability to go to market in the way that I described, to go for those strategic long-term agreements in development for mass production that will yield a big growth phase for the company. Now, there is a gestation period for those. We need to negotiate the deals. We need to go and buy the tools. We need to put them in and qualify them and so on. For the inpatient among you, of which I'm one, that may seem frustrating. But actually, that's a really great factor of our business model because that provides also really great customer stickiness, but it takes time to put in place. As Keith has described, we can do it faster than anyone else that the growth phase will be there. And over time, that will help us create the epiwafer champion of the industry together with our customers. Okay. Tim, this is a Capital Markets Day. So you need to explain how we're going to make some money, right? How is the margin going to expand? As we said, over 30% EBITDA margin by 2027, this is the industry level of profitability that the shareholders in the room and online will expect. Just imagine what the company could be worth if we value ourselves based on that EBITDA versus where we are today. Three ways: revenue growth, we talked a lot about today. Increasing that volume, that top line in order to grow the margins of the business. The global site optimization that Keith has talked about, reducing the number of sites to their strategic footprint so that we can optimize our cost base and then operating leverage to increase the margins of the business. What do I mean by that? Well, look at us today versus 5 years' time. Lower wafer volume spread across circa 6 sites until we closed Singapore in June. A relatively high fixed cost as a percentage of revenue, certainly compared to single-site operators that we would sometimes be compared to. By 2027, 4 strategic scale sites. 3x the number of reactors considering those sites, as Keith has explained, higher volumes. And also, that process of standardization to get the productivity and the efficiency from our execution engine, delivering those economies of scale for our customers. That's how we'll optimize our fixed cost as a percentage of revenue. And how is that wafer volume increases, we'll be spreading those fixed costs across a much larger number of wafers and making much bigger margins, over 30% EBITDA. The final thing that we'll talk about is how we're going to invest. So obviously, if we're going to be putting in that capacity, we need to pay for it. I need to be clear, this is not a build it and they will come strategy. That's not to say the investing ahead of the curve doesn't have its advantages. The 4 site that Drew had to build new ports is an incredible advantage in today's world. When we think about the industry and how it now realizes the cost of not having capacity and keeps articulation of how that gives us a 24-month advantage to anyone else to put that capacity in, it's an amazing asset to have. But going forward, as you can see, we don't need to put a spade in the ground. We don't need to build new facilities. And that means for our investors, the CapEx that's going in is much more linear to the revenue opportunity that we see, more revenue, more reactors. So let's talk about 2 ways we're going to invest. There's R&D and there's capital equipment. Research and development. Building on what Rodney talked about, we see that we're moving to being more market-led. So collaborative strategic partnerships, to capture the value in our knowledge base, whilst bringing more value to our customers. We're really accelerating the time to market here. And importantly, we're sharing the technology risk with our customers. We're managing that technology risk to make it more likely to be successful. Now, that doesn't mean you always be successful. And one of the core competencies of IQE is operating at the leading edge. Sometimes at the leading edge, things will fail, that's normal. It's good to fail, if you learn from it, that's a good thing. My mantra has always been don't get in too deep, too early. And so this is about investment governance. It's fine to fail as long as you haven't invested too much on the way there. And so it's through that disciplined approach, sharing the risk with our customers, collaborating with them, we get the best of both worlds, the maintenance of leading-edge technology advantage with the return on investment that comes from it. Capital equipment. There's 2 ways we'll invest here. So on a tactical basis, we may invest in a tool here or tool there, probably material specific, probably for a specific development project with a specific customer. Here, we have the balance sheet strength to be able to go and invest in that ourselves. And/or that will be paid for with the collaborative arrangement that we've talked about in our business model for research and development. If we need to put more tools in than that, which we will on this journey 3x, those of you who have worked out how many tools that might be in your models. Banks are 5, 10 or even more reactors that will be funded through those customer agreements. There's 2 ways that we can do this. Either we'll get a prepayment upfront from the customer and then a discount on the wafer volume over time in order to put the capital in, or we'll have firm commitment in a contract 3, 5, 7 years that would enable us to come to the market to yourselves to raise the money, but with a clear return on investment story as to why that capacity is going into our facilities. So to summarize, we're going to grow this business 3x. We're going to expand our margins to industry levels, and we're going to become the champion of the epiwafer industry. Thank you.

Thank you, Tim. There's something very powerful as a head of global sales, I see my performance target right there on the big screen for everyone to see 3x revenue growth in -- by 2027. But listen, is the right market, the right technology, the right facility, the right team, so sign me up. I'm going on record right here. So it's definitely in our sight. Okay. So that is the end of our prepared remarks, so to speak, and we'll be pivoting now into a Q&A. But before we do that, let me just give a very simple summary of what you've heard from us today. So at IQE, now we are market-led. We're going to capture the value for what we do, and we will scale and grow the business. That's it. So give us a few minutes here to kind of rearrange the stage, and I'll ask Americo, Rodney, Keith and Tim to come up for Q&A. And those online, please continue to submit your questions. We'll pull up those as well.

Okay. That was fast. We're ready. Okay. Maybe we'll start. I have my phone here because that's where I'm seeing the question from online. But why don't we start with a question here in the room if we have one. So -- and we have a roving mic, so just give us a moment to get that to you.

It's Harvey Robinson from Panmure Gordon. I've got a few questions. I'll start with a couple now and then come back later, but 2 strategic questions, I think, for Americo. It sounds to me from what you're saying in terms of a slight shift from wafer sales to, if you like, solutions that you may be thinking about charging for design services. Is that something you're thinking of almost like NRE? Is that the right take on that? And then my second question is maybe even more strategic, you're talking about partnerships and value for the company in the ecosystem. I mean, you sort of reminded me some thoughts that when ASML took money from 3 leading semiconductor companies in 2012 to pay for EUV. Is that something you're thinking about over time? Or you just -- or Tim's explanation of how you fund the CapEx is a slightly easier way of doing that?

Thanks for the question. It is a bit of all what you mentioned. When we look at what we do and how we do it, we go from early-stage R&D investment with customers all the way to high-volume scaling, that's one. Second, we work with pretty much everybody in the ecosystem. And the way we create value is different for each of those ecosystem partners. You heard from [ bunch ] how we partner with them to create high-value-added products, differentiated products. So it could go from NRE type of funding in early-stage R&D to co-investment into the scale.

Just -- I mean, I also got the mic. I've got a couple of questions for Tim which I always asking. I think he knows what they are. Could you just come back -- I mean, obviously, the 3x revenue growth, I mean, quite a lot of that can be achieved from your existing capacity. Could you just give us a reminder of where we are in terms of current [ cap ]? And obviously, your gross margin kind of hides the true number because you've got all that manufacturing costs in the COGS. I know you've given us the EBITDA margin, and I know you're sensitive about the gross margin, but could you give us a feel for where gross margin may get to in 2027?

Okay. So in terms of facility utilization, it does change by different material systems. So Rodney laid out the different material systems that we produce. And we also talk briefly around the different tool platforms that we have as well. So we have less utilization on our MBE facility. So MBE, if for those of you who don't know, it's just one of the types of oven that we use. And we have higher levels of utilization elsewhere. So for example, in Newport, we have 10 tools at the moment where we produce our 3D sensing VCSELs. Those are actually very high utilization at the moment, strong performance in the second half of this year. So depending on what material system it is, it's growing, we may need to upgrade a tool or buy a new tool. And so the return on capital employed will be different. But always, we would have a strong return on investment because of the commercial model that we're deploying. The gross margin, what I'll say to you is that the EBITDA level we set out today gives us a good industry level of EBITDA margin. And whilst I'm not going to disclose a gross profit number because it will change depending on the mix, it would be industry-level gross profit to go with it.

Let me just pick maybe a couple from here to make sure I pull in some folks on the end here. So there's a question around about do you see any risks, Keith, in skill shortages in terms of the expansion plans that you use? And then a specific questions about locally and is there any geographies where you see that as a particular issue?

We're partnering very strongly with local universities. If I think about Cardiff University, Rodney and the Cardiff University team are incredibly closely collaborating on new technologies. That talent pipeline that I alluded to in the people section. That's one of the reasons for that close collaboration. And so we've got line of sight to that, and we're very encouraged by that collaboration.

Good. Come back to the room here. Just give us a moment.

John Karidis from Numis. I have 2 questions, please. So firstly, if -- when you're in sort of conversation with companies that you'd like for them to outsource to you. How do you answer the question, what happens if somebody takes IQE over? How big of an issue is that? And then secondly, I'd like to understand where you are in developing your sales and marketing muscle? So maybe it's unfair because you've just taken the reins. But I'm trying to figure out, and I know that this is never -- this is a job that never ends. But what are sort of the basic things that you are still missing? And how soon will those pieces be in place?

Do you want to take that first -- last one?

Thanks, John. On the -- well, when we talk about the industry, as I tried to outline, the conversation is not limited to M&As. We really look at the industry challenges that we all face. And the fact of the matter is there is a consensus out there that there is a big market, a growing market, the exciting market that has values. The question is how to go capture that market. So most of the conversation focused at the strategic level on how can we make sure that we factor into our decisions to global challenges like geopolitics, supply chain risk, investment profiles, technology innovations, competitive landscape and the like. So we really don't focus on what happened if one company got change controls here and there. That's something we always know can happen, and it should not change our fundamental business processes.

Yes. And I'll comment on the sort of the sales question. And yes, I'm still developing the plan and identifying exactly what we need, but there are some actions that we've taken recently that I think are really important. One geography that we didn't have a strong presence in terms of our commercial engine was in Asia, very large. And I have [ Kevin Wang ] here who just joined our team as Vice President of APAC sales. And Kevin and I have worked together over the years and built businesses at IBM and GlobalFoundries. And we plan to do it again here. So that's one very important add for us, and there'll be others.

[ Sala ] here from the International Semiconductor Executive Summits in [ Mubadala ]. Out of interest, with regards to IQE, will IQE take the opportunity of possibly getting a bit of the CHIPS Act from the U.S. or so. I mean, I'm not sure about the EU because we're out -- I mean prunes out of the EU? But where is IQE's position in that area? And the other question that I have as well is with the investments happening in India, and there will be specific investments happening in the Middle East. Will IQE potentially consider opening a fab in that area if it makes sense?

Good questions, complex on the CHIPS Act one is easy. Yes, we want the money as much of it as we can get. We have plans in place. As you know, we operate in the United States, not only from the fab perspective, from the business perspective. It's our largest market, not only in consumer but in mill defense as well. So IQE is really a very strategic partner of the U.S. ecosystem as a whole. And given my background, I've been in the CHIPS Act process before, as you may guess. So we are putting actions in place to be part of that complex but yet very, very important process. But you're talking about EU. There are also EU funding that we would go after. And wherever we have operations, wherever we have opportunities to build a public-private partnership, including in the U.K., which I wish would have been made way faster. I have not seen any line of sight yet, maybe someone can help in the room to get the U.K. to come to the table, I believe it's still the only large country in my memory that has not set any semiconductor strategy. So if they are listening, let's get going. As far as other geos, we have not really contemplated. I think the challenge we work with is how to maintain the optimum footprint while we scale the business.

Maybe I'll just go to one question here to bring Rodney into the conversation. Believe it or not, there is a question on the chat about quantum dot. And really a general question about what we're doing there.

So yes, we are doing quantum dots. And for those keeping track, that would be part of the gallium arsenide material system because that's the latest parameter since it's the second question. So we are involved in it through government programs, but we have a very nice capability in North Carolina, then beat the capability, and we've actually demonstrated quantum dots on 300-millimeter wafers. So very well established and a very nice technology. And as the market is going to pull towards that, we'll continue to develop that.

Very good. Thank you. We'll take another question from the room. Right in the middle here.

Balajee Tirupati from Citi. A couple of questions from my side. First one is, at this stage, what would be the key challenge in meeting 2027 target on revenues? Would it be diversification in new segments? Or would it be trying to convince your peers or competitors with captive facility to outsource to you?

We have to run both plays, okay. And the market is open to outsourcing, we believe, because as Tim tried to explain, captive players today face great and greater challenges moving forward. So we are not prioritizing one strategy versus the other, we are owning both of them in parallel.

Understood. And then on margins, I guess a lot of emphasis on optimizing fixed cost base. However, with the current geopolitical evolution, would you think that inefficiency in capital allocation could be a key challenge for you?

Let me take the first part, maybe Tim can jump in. I think as I tried to say in my introduction, the benefit of what we've built over 50 years of large-scale single site is no longer the predominant factor. I think the industry has come to realize that even though there is an inherent cost of running global footprint, there's value on doing this. So it's up to us to continue to articulate and to capture that value from our customers and by providing that secure and resilient supply chain. But that doesn't prevent us from optimizing our own fixed cost, right? So we will continue to do that, as Tim said, and continue to run operationally as efficient as possible. But as you know, the factory has to run at full capacity to be able to deliver the best economics. So scaling up by 3x our revenue is one way we're going to see our margins improve significantly.

I think to answer that as well. One of the examples I gave was the scale and the standardization that you've seen in silicon, leading to the outsourcing predominantly in that sector. If now the world is looking at that with one disadvantage, it's the fact that a lot of manufacturing is concentrated in single locations, potentially viewed as high-risk locations. As IQE's coming from the other way around, we're not facing the challenge of how do we globalize a concentrated low-cost operation. We're coming at it from the challenge of how do we scale an already established global operation. And actually, I'd rather have it this way around. Ours is a growth challenge. We already have that global footprint, which others will probably now try and emulate.

A significant share of your current footprint or the capacity to expand is based out of U.S. or in the U.K. One of the key markets -- end markets, China, with the current evolution may prefer a site, which is based out of Asia. So do you see need in the near future to actually expand in Taiwan?

Not immediately because we have expansion capacity, as Keith outlined, in Taiwan. But as we've outlined with our commercial strategy, our approach will be to collaborate and put in place strategic capacity with customers. It really depends on the scale of some of those as to whether -- that will happen within the 4 walls as we can do, we can meet our revenue target within the 4 walls. But if need be, we could scale outside of those 4 walls as well.

Any other questions from the room?

Helen Adams, Porotech. A simple question. I think you talked about scaling and you said you're going to do it in a modular fashion. How are you going to -- how do you factor in sort of competitiveness for MOCVD machine, for example? Because everyone is trying to get [indiscernible] very long lead times. So how IQE going to manage that over the next 5 years?

I think the partnership that we have with Aixtron works both ways, with the leading edge epitaxy that Rodney and his team developed and the ability and the growth trajectory that we see, that's a mutually beneficial partnership. As well as [indiscernible] communication and that kind of line of sight to where the industry is going, means that we're having those conversations that say we're well prepared to meet that together.

Very good. We will go to one question in the chat. Tim, there's sensing a lot of optimism about your commitment to these financial targets and a question around why the optimism?

Why the optimism? I think we've seen it here today, aren't we? I think if you look at the heritage of the business that Drew built the amazing assets, people, IP that we have, together with the market down thinking that Americo brings, the strategic thinking that Christine outlined, the technical capability that Rodney and his team bring, which is unique in the world. The facilities, the uniqueness that Keith is running every day on a daily basis and the scalability that those things have. If ever there was an ingredients list for success, then that's it.

Very good. We'll take another one from the room.

It's [ Elliot ] from Numis. First question, just around reporting revenue segments. I thinking that that's going to change now into the verticals and move away from Wireless and Photonics? Secondly, inflationary pressures across the business where you see the most the largest inflationary pressure and how are you mitigating that? And then lastly, how would you reinsure investors around pricing power?

Obviously, in the world at the moment, there are some challenges. We've outlined those. It's well documented that there's a lot of handset inventory in the chain, for example. But I think what I would urge people to remember is that inventory cycles are a normal factor of the semiconductor industry. And actually, what we've seen this year is the IQE portfolio working pretty well. So where we've seen some weakness in the handset market, we've seen real strength in photonics, for example, in the second half. And that's really the strategy as to why you diversify further, right? The more you diversify, the more you get that robust portfolio. Yes, some things will be up 1 year, some things will be down, but the balance is overall that you can get that consistent growth. If you look at the inflation question, obviously, a hot topic for everyone. There have been some input cost inflations that we've seen this year. As I say, some of those, we've passed through in that pragmatic supply chain conversation to keep things sustainable, but other things we need to eliminate through efficiency. So that's why as we scale, we're standardizing, we're scaling to make sure that we're not always having that customer conversation because this is an industry that drives down cost. It drives down the unit cost in order to take the technologies to market, and that's what we're focused on. So we may see some short-term challenges, but longer term, we'll be able to overcome those with the efficiency and scale that we have. Sorry, the third question was pricing power. So that's really the business case for outsourcing, and it's the mutual benefit that you can generate. As I say, it's not about the cost per wafer. So if we're going to maintain a high price per wafer, that's not a bad thing for our customer. What they get in return is a high-yielding, high-quality wafer that enables them to reduce their OpEx, their capital intensity, gain access to the leading-edge technology, there's larger wafer diameters, the economies of scale and so on. So this is really a win-win. We can maintain strong margins with good priced wafers and enable economic benefits for our customers.

Tim, if I may add. The efficiency question, if I think about VCSEL as a specific example, over the last 4 years, what Rodney and I didn't talk about today was the combination of his team's expertise and my team's expertise in driving effective and efficient growth of our production year-on-year. That growth over the last 4 years, the combination of expertise in our teams is very significant, double digit. Americo's expectation underneath that is that continues year-on-year. And that compounding the message you see today is that challenge to my team and Rodney's team to continue to deliver that efficiency.

We'll go to another from the chat for you, Rodney. So you were talking about the leadership position we have as the power in GaN. And as that opportunity emerges, there's a question about what technologies are serving that market today?

Yes. So reading the question they may have misunderstood when I said we're the one that can operate across all of each of those at the same time. So there are players in each of those areas. And so right now, your power in GaN is virtually all exclusively on silicon. And as I mentioned, it's a market that's there today, but it's going to grow very, very quickly. And so a lot of your partners right now in that area are vertically integrated. And so as that grows, and that's going to be one of the cases that I'm sure they will bring forward and we will be addressing as well.

And Tim, the specific question around ROI expectations as we make investments.

Very strong is what I'm saying. We don't set a single hurdle rate for ROI. But what I do expect is that the total investments that we have would pay back in between 3 and 4 years. You can research the cost of a tool. And so you can see that we could get a relatively strong payback on these. These tools going to operation for 20-plus years. So if you can get a payback in 3 or 4, then you're going to get a really strong ROI through the life cycle.

[ Bharat from Berenberg ]. Just one question on when you set up these long-term contract -- long-term agreements that you're talking about in the future, can you give us a bit more detail on how the revenue visibility is going to be improved? What's going to drive that visibility improvement?

That visibility comes mainly from what Tim tried to outline, mutual commitment. Because if you're a customer, you build devices, you need epiwafers. And if you don't have an epiwafer, you don't have your own product. So that mutual commitment that says they rely on our output and we rely on their demand. That's very, very important. So the more closely we work to more visibility we create and that visibility creates certainties on both sides.

Sorry, another question actually. With regards to the -- for example, you talked GaN across all 3 -- across the new segments as well. Is that going to have like incremental R&D costs as well because you have -- as you said, it's a different recipe across these different segments. So is that factored into your forecast in the near term?

Yes. So I'd say one of the key things is certainly development in there. But if you're market-led and you're partnered, you'll be tied in lockstep and you'll be driving for that value. And that can be achieved in a lot of different ways. So would there be development that's necessary? Absolutely, would be some but there will also be a partner that you're partnering with at the same time and both extracting value as you go.

Very good. Well, we're at the top of the hour. So it seems maybe an appropriate point to pause Q&A. You know how to get a hold of us if there's any other further questions or anything. Americo, any closing comments as we end our session?

Well, I want to thank you so much for giving us your time online, in the room. Great questions, that showed the interest. I am really excited. I tried to do my best to share my excitement, my energy with you guys. This is a great business. And we do this because we need to make a great impact in fixing some of those global challenges. Of course, we run a business. It's not lost on any of us. We have a great asset. The market needs us, the market is transforming fast. My ask is, this is a new normal, okay? I know this industry has changed a lot. The playbook that anyone would have had 5 years ago is gone. No matter who you are in the industry, right? This global market where everything is open, where you go bill where it's cheap. I see questions about China, about Taiwan. We don't have time to go to that. Every executive bought every CEO is trying to cope with the change. I have had the chance in my hand, in my experience, in my career to have worked across 3 different continents across the entire industry from R&D to business to sales. So I have seen it all, maybe I'm able to synthesize a little bit better than most because I've been there, I was running Asia Pacific in my past company. . So it is a very complex industry, but it's a very exciting industry. So what we're trying to say today is this is a new normal, and I would like that very much we look at IQE and IQE opportunities throughout these lenses. I know some have been with us for a very long time. They have been ups and downs. This time it's different. Thank you very much.

Thank you, Americo. Thank you.