IQE plc (IQE) Earnings Call Transcript & Summary

Good morning, and welcome to IQE's 2024 Annual General Meeting. I'm Phil Smith, Chair of IQE. And on behalf of the Board, I'd like to thank you for joining us here today, whether that be in person or through our webcast facility. The IQE Board of Directors are represented here today with Americo Lemos, our CEO; Jutta Meier, our CFO; and Non-Executive Directors, Victoria Hull and Harmesh Suniara and myself, of course. There are at least 2 shareholders present, which means the meeting is quorate. I therefore declare the meeting open. Before proceeding with the formal business of the meeting, after which I will -- you will hear from Americo, I'd like to remind shareholders, there'll be an opportunity to ask questions for those in the room after Americo's presentation with the option to submit a question for the Board through the webcast portal. Question submission on the webcast will close at the end of Americo's overview. I confirm that the notice of Annual General Meeting, together with the explanatory notes, was published on the 20th of May 2024. Accordingly, the requisite notice of the meeting has been given. We propose that the notice is taken as read. The more accurately effect the views of shareholders, voting today will be done by way of a poll on each of the resolutions put to the meeting. This is consistent with the approach that IQE has taken at recent AGMs, and is seen as best practice as it gives shareholders the opportunity to participate in the decision-making of the company and have their votes recorded. Those who are attending the meeting in person will be able to vote by submitting the paper poll card, which has been provided to them. Before opening the poll, we are withdrawing resolution 8 from the meeting to reflect Drew Nelson stepping down from the Board. I now declare the poll formally open. [Voting] The poll will close in 5 minutes after the end of the meeting. If you have any questions about filling in the poll card or if you require any assistance, please speak to the registrar's representative who will be standing by the exit. Subject to the necessary majority of votes having been cast in favor, each resolution will be deemed to have been carried. Resolutions 1 to 13 will be proposed as ordinary resolutions for those resolutions to be passed, more than 50% of the votes cast must be in favor of the resolution. Resolutions 14 and 15 will be proposed as special resolutions. For each of those resolutions to be passed, at least 75% of the votes cast must be in favor of the resolution. The final results of the voting, including the proxy votes on each of the resolutions will be announced through our regulatory information service and published on our website as soon as reasonably practicable. We will now proceed to vote on the resolutions, which I formally propose to the meeting. Resolution 1, to receive the directors' report and audited financial statements and the directors' and auditor's report for the financial year-ended 31st December 2023. Okay. To resolution 2, to approve the directors' annual report on remuneration for the year-ended 31st of December 2023. Resolution 3, to reelect Phil Smith, myself. Resolution 4, to reelect Americo Lemos, CEO. Resolution 5, to elect Jutta Meier, our CFO, Resolution 6, to reelect Carol Chesney -- Ellen Carol Chesney. 7 -- resolution 7, to reelect Victoria Hull. And Resolution 8 was withdrawn, as we said. So if there are no votes against in the room here, then we'll move on to the second set of resolutions, take those as passed. Resolution 10, I try to read the board. Resolution 10 is to elect -- sorry, resolution 9, I think I missed off the end there, apologies, to elect Bamdad Bastani, who is Bami Bastani as we call him. Resolution 10, to elect Maria Marced. And resolution 11, to reelect Harmesh Suniara. Resolution 12, I look at my comfort monitor again here, sorry, resolution 12, to reappoint KPMG LLP as auditors of the company to hold office from the conclusion of the meeting to the conclusion of the next meeting, at which the accounts are laid before the company and authorize the directors to fix their remuneration. Resolution 13, to generally and unconditionally authorize the directors to allot shares. Resolution 14 -- resolution 14, yes, 13 is the next page, sorry, resolution 14, subject to the passing of resolution 13 to empower the directors to display preemption rights, which apply to the allot equity securities in resolution 13. Resolution 15 -- if resolution 13 is passed and in addition to the power confirmed by resolution 14 to empower the directors with additional rights to disapply preemption rights, which apply to the allotment of equity securities. This concludes the formal business of the Annual General Meeting. As previously mentioned, the final results of the meeting will be announced to the market through our regulatory information service and posted on the website as soon as practicable. I'll now hand over to our CEO, Americo Lemos, who will run you through his view of the market and the company at this point. Thank you, Americo.

Thank you. Thank you, Phil. Good morning, everybody, and thank you for joining us today. We are in interesting times in our industry, and we'll cover some of that. At IQE, we are committed to enabling an intelligent connected, low-carbon world, and that's very, very important. Let me take you through a business update and the tremendous opportunities that are ahead for IQE. As you all remember, 2023 was a challenging year for our industry. We have delivered a downturn in the first half as a business, and we had committed to a recovery in the second half. I'm pleased to say that we are seeing that recovery continues into 2024. We have seen a normalized level of inventory in our industry. And also, we have taken steps to diversify our business, including in the wireless space, by taking more shares into the Android ecosystem as we announced back in April. It's very, very important for us to continue to diversify our business to continue to take shares. Second important point to highlight is the unprecedented level of investment going into semiconductor industry. And by and large, focus on manufacturing capacity to develop a resilient and secure supply chain, which IQE is perfectly part of, as I highlighted several times. We are talking about hundreds of billions of dollars annual spending in the semiconductor manufacturing industry. It's unheard of at this point, and we expect that level of investment to even increase moving forward. Why? Because of the wide adoption of generative AI. It is a phenomenal transformation of the industry. It is even a revolution on what generative AI can do, and we expect GenAI to impact every single business moving forward. We will talk about it. We have always said there are structural megatrend that fuel the growth of this industry and compound semiconductor in particular, where IQE is extremely well positioned to serve with our technology road map, our global footprint and our large-scale operations. These mega trends haven't changed. We are still talking about intelligent transportations, EVs and even software-defined vehicles, Industries 4.0 (sic) [ Industry 4.0 ], AI and advanced communication systems being 5G or Wi-Fi 6, 6E going to 7. These megatrends now are being accelerated by generative AI. We will see a growth trajectory that this industry has never experienced before. Why? Because of what GenAI provides in term of services. And we expect generative AI, as I said, to be adopted widely and as fast as the industry can really put it into place. So GenAI comes on top of those megatrends and accelerate again the amount of potentials for IQE technologies into the industry. It is expected that GenAI will drive an incremental growth of up to 50% of the semiconductor demand by 2030. And we have said before that we expect a chip market to be $1 trillion market by 2030. But it's forecasted now that with generative AI that the total market by 2023 would grow up to $1.3 trillion at device level, which is a tremendous amount of opportunities for IQE and its technology, and we will discuss how we will play into that market and what technology we will deliver in the marketplace. But these opportunities of GenAI would come with a set of challenges and bottlenecks. And I have tried to highlight a few here that are very, very important to address to be able to benefit from the full potentials of generative AI. One being power consumption. It is expected that a GenAI data center, even optimized, would consume 10x of a traditional data center today. Data centers, as we speak, I believe consume 1% to 1.5% of total energy. It is expected to grow to 10% by 2030. Well, that level of energy simply doesn't exist. So we have to find a way to provide solutions that are technology-based solutions that the compound materials will be very, very well suited for. So power consumption is one tremendous challenge that the overall industry has to deal with. The second challenge is the quality of the data that we capture. So that's sensing at the edge. It is important to understand that in the traditional AI today, the quality of the data is not great. So we spend a lot of time, energy to process data that doesn't have necessarily the full optimum input to the cloud models. Therefore, getting advanced sensing capabilities at the edge is absolutely critical to enhance the full GenAI experience. The third point is data migration. In the data centers, one of the key bottleneck is really not compute. Compute is well understood and delivered, but the data traffic inside your data center becoming a critical bottleneck. And by the way, one of the key factor of power consumption into the data center. So we will deliver photonic solutions and other compound materials that would address these issues. So to be able to deploy GenAI's full potential, we need to bring the ecosystem together to address those bottlenecks. And we will do it through some architectural change, but most importantly, we'll do it through some innovations at the material level as well as on the architecture of the digital world as a whole. What does it mean for IQE? We are ready. Our portfolio is exactly designed to help solve those bottlenecks. Let me start with the edge. There's a lot of discussions today about GenAI being at the edge or the cloud. So we believe there's going to be both model would coexist. Why? Because the large models would run into the cloud as we know, but the edge is where the tremendous growth is going to happen. And because of the network constraint, we expect to see some models running at the edge. You'll see some GPT models running on your handset. We'll see some industries willing to run some customized GenAI models for security reasons, for data privacy reasons, et cetera, et cetera. So the edge is absolutely critical. And let me define the edge a little bit because very often, we believe the edge is just a smartphone. It isn't. It's anything that is not connected to the cloud. A car is a perfect example of what an edge device is. It has tremendous amount of compute, thousands of chip, between 5,000 to 8,000 chips in a car these days, tremendous amount of sensing capabilities and it has to be safe. Industries, homes, our computers, our offices, et cetera, all those are edge elements in the GenAI architecture. So they all have to become more and more equipped with sensing capabilities, as we said, and also with their own GenAI at the edge. So at IQE, we have, as you know, our sensing technologies that we have been developing in a security industry that we can transform into consumer, that second to none in term of technology road map. We have our laser technologies. We have our VCSEL road map. All those would help equip the edge devices with tremendous sensing capabilities that allow us to have a better quality of the data at the edge. The edge is also very, very important in term of power consumption. As we run the GenAI models at the edge, we expect the power consumption to be tremendously high. And none of us want to have our phone battery life to drop to 2 hours, right? We won't like that. So we want to have the benefits of GenAI and the comfort of the services we are used to. So we need to innovate in term of power saving technology, and that's the GaN on silicon for power that IQE has been developing. Now edge has to connect to the cloud, and therefore, our network infrastructure become critical. Providing a high-bandwidth ultra-low latency connectivity is key in the GenAI space. And at IQE, we have -- our technology road map being GaAs HBT, being GaN RF for infrastructure that are absolutely well-suited to equip the next generation of network -- wireless networks. Looking into the cloud, a lot of investment, as we know, is going into the cloud. We'll see new data center architecture dedicated to GenAI that require a few critical things. They require photonics, silicon photonics as interconnect for faster data traffic and lower power consumption inside the data center. That's our photonics road map. Our quantum lasers would help address those bottlenecks in the data centers. As I said, we also expect power consumption to be at least 10x what it is today. And with GaN power technology from IQE, we will be able to lower significantly the power consumption of those data centers, as we speak. So as I said, we have a full road map that is well-suited for GenAI. And on top of our technology road map, it's important to look at all the strategic advantage of IQE, which is our global footprint that allow us to manufacture product in 2 different continents seamlessly. I think we are the only one today in that space that can offer such a resilient and secure supply chain to our strategic partners and compound with the fact that we have the capability to scale in our facilities that allow our customers to capture those opportunities ahead with GenAI that are all targeted to be 2023. And for our industry, 2030 is around the corner. So IQE is extremely well positioned to capture the full potential of GenAI. And I think I'm very, very happy for the future of the business. Thank you very much.

Thank you, Americo. I'll shuffle up here and let you join us here. So we'll now open for a Q&A session for any questions submitted prior to and during today's AGM. Thank you to all of those who have submitted questions in advance. We'll answer these first and then move to questions in the room and those submitted through the webcast. So we'll hand over to get those [ right to us. Thank you, Corey ].

Thank you. So we have 7 questions that have been submitted prior. The first is, will IQE hold another Capital Markets Day this year?

I'll hand over to Americo.

Sure. We had our Capital Market Day at the end of 2022, and we are executing on that strategy. And as we see fit, we will hold another one. We haven't set the date yet, but I look forward to having another one to update the market.

Thank you. The second question is, during the full year 2023 results, Americo, you stated that there are many more partnerships in the pipeline. Can you confirm that there are further partnerships in the pipeline, which have not been announced?

As I said, we have a diverse customer pipeline, actually, and I'm very pleased to see that pipeline continues to grow as we articulate our strategy as we continue to engage with new players in the ecosystem. And I just try to explain how large the opportunities are. So we will make announcement as we see fit, but rest assured our customer pipeline is very healthy.

Thank you. Please, could you state the total addressable markets for both GaN power and microLED that IQE is targeting?

So the GaN power is actually a very big market. And I think it might even be underestimated, given what I just talked about on GenAI demand at the edge and on the cloud. Last time we look, the GaN power device market was about $2 billion. [AP is ] maybe half of that, give or take. We are still working on that model. The microLED is a technology to come. We are working actively with very important customers in getting the technology ready for the marketplace. Then it's important to understand that it's important to get not only the technology, but to be able to manufacture that scale and the right price point for microLED. So we are working on all of those elements.

And then what is the biggest opportunity for IQE between GaN on silicon or GaN on silicon carbide?

We are getting technical now. Both are great market. We have been doing GaN on silicon carbide for a long time for infrastructure market, and we are beginning to invest on GaN on silicon for power market. Both are our focus groups, right? We believe GaN on silicon would be a very large market moving forward, again, just because of the demand on power for GenAI and other devices that we see proliferate at the edge.

Is IQE still in the working relationship with BluGlass?

We don't comment on customer relationship.

And the next question is, does IQE plan to use its cREO technology?

So we have put cREO technology on pause. And like any technology we have in the business, we know we have it, we'll see when it's the right time to use it, yes.

And the last question is, please, could you explain why the terms of the LTIP had not been decided by the time of the annual report being published in May?

Yes, I'll take that. I mean, clearly, we would like to have done that, but we're also recognize that you've had very eloquently from Americo that we're in a globally competitive market here. We have -- we are trying to make sure we bring the best talent on board, but we have to do that within the structure of U.K. corporate governance. And I think it's important that we find the balance between those 2. It's not an easy thing to do, but it's something that we're trying to do. But as a result, the Remuneration Committee led by Victoria, who's here today, has done a very diligent job trying to get us to the right place, but we want to do the right thing for the company in the right time. And I think it is a balance we have to strike. Thank you.

Those are all the pre-submitted questions. If there are no questions in the room, we'll hand over to Americo to close off.

Okay. No other questions. Okay. Well, thank you very much. And it's actually, I think, me that's going to close off. So thank you for all those questions. I appreciate them being submitted and to Americo and the team for the answers. So this now concludes IQE's 2024 AGM. I'd like to remind you the poll will close in 5 minutes, and I thank you all for your participation.

Thank you.

Thank you.

Thank you very much.