Leading innovation from withinNeedham Conference - January 2020

Introduction to IQE

IQE – the scaled global epitaxy leader

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Our Sites and Technologies

MO

CVD

MBE

Subs

trat

es

Wire

less

Phot

onic

s

Cardiff, UK (HQ) P P

Newport, UK P P

Milton Keynes, UK P P

Spokane, US P P

Massachusetts, US P P P

Pennsylvania, US P P P P

N Carolina, US P P

Taiwan P P

Singapore P P P

MOCVD = Metal Organic Chemical Vapour DispositionMBE = Molecular Beam Epitaxy

USATaunton, MAGreensboro, NCBethlehem, PASpokane, WA

EuropeNewport, UKCardiff, UK àCSCMilton Keynes, UK

AsiaTaiwanSingapore àCSDC

Where we operate

Asia

30%

Americas60%

Europe

10%

WirelessEpi wafers for handset and telecommunications infrastructure.

PhotonicsEpi wafers (lasers) for use in 3D sensing, fibre optic communications and military infra-red. Substrates for infra-red applications.

Our Business Units

Headquartered in Cardiff, UK

2019 Revenue £136 to 142m

650 staff across 9 global sites

Key Facts

Geographical Revenues

IQE is a materials specialist, supplying the entire market Agnostic to winners and losers at the Chip and OEM level

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Wafer Production

Substrate

Epitaxy process

Chip Fabrication Device Manufacture

IQE operates across diverse markets

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5G infrastructure 5G handsets 3D sensingin smartphones

3D sensing beyond the smartphone

Lasers for commercial applications

•Global roll out of base stations and small cells• GaN on SiC• GaN on Si

•Next generation, high-efficiencyPower Amplifiers•Market entry into

Switches and Filters (BAW and SAW)

• Facial recognition • ‘World facing’

cameras• Structured Light

and Time of Flight (ToF)

•Consumer devices•Commercial

applications•LiDAR

•Next generation lasers for fibreoptics (10G & 25G DFBs, APDs and PINs)•Military

applications•Environmental and

health monitoring

There will be an inflection in demand for compound semiconductors driven by macro trends in the technology industry

IQE’s Business Model is scaling for mass production

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Delivering shareholder value

Expanding margins and cash generation

Research& development

New products Manufacturingcapacity

Customerqualification

Massproduction

High barriers to entry exist due to IQE’s IP Portfolio (both patents and know-how), lead times to create products and construct facilities and the process of customer qualification

Business Update

The speed of supply chain shifts from US to Asia has been rapid but highly disruptive in the short-term

Market ContextIQE is well placed to adapt to Global supply chain shifts resulting from Geopolitical tensions

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Expected weakness in handset market in H1

Geopolitical tensions have reduced volumes & created conservatism in supply chains

IQE’s global manufacturing footprint and position as materials solutions provider, supplying the whole market, mean we are well placed to adapt

As the macro trendsof 5G and connected devices play out, IQE remains uniquely placed to capitalise on an expanding market for compound semiconductors

Foresight Conservatism Anticipated disruption Adaptable Well positioned

2019 represented a challenging market in an unprecedented geo-political contextProgress has been made to ensure the business is well-positioned for future growth opportunities

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Newport Mega Foundry constructed and now in production for existing large OEM plus a major chip customer in Android supply chain. Ten tools installed, capacity for 100 tools.

Capacity expansion completed in Taiwan to enable 40% higher volumes, ongoing qualifications with major Taiwanese foundries

Closure of New Jersey (US) site and expansion of GaN capacity at Massachusetts (US) site

Targeted cost reductions across the group completed

Singapore JV (CSDC) bought back under 100% ownership to tackle Asian market opportunity and restructure cost base

Credit facilities increased to £57m (year end net debt of £15-20m)

Revenue EvolutionCurrent guidance for 2019 is £136m to £142m with return to growth expected in 2020

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114

133

155 156

136

2015 2016 2017 2018 2019 2020 2021 2022

GBP £’m

Return to Growth Drivers in 2020:• Wireless: US Chip Company volumes driven by 5G handset shipments; Expanding qualifications and volumes with

Taiwanese foundries• Wireless: GaN on SiC volume increases for 5G infrastructure roll outs• Photonics: VCSEL market expansion (existing large OEM content increases; Android Time of Flight (ToF) adoption)• Photonics: Indium Phosphide opportunities in Asia (China 5G)

142

2017: Initial VCSEL ramp

2018: VCSEL inventory correction

2019/20: Asian supply chain shifts

Stabilisation = Moderate Growth

Market opportunity growing at 25-30% CAGR driven by 5G and Connected Devices macro trends

CapexH1 FY19 and Outlook

5.712.2

6.3

24.119

H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19

Capex Cashflows £’m

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Cash used for capex • Current expectation for FY19 is at the low end

of full year guidance of £30m to £40m • Capex for 2020 is expected to step-down

following the capacity expansion investment. Maintenance capex is in the region of single digit millions. There is sufficient capacity in the group to underpin 2020 growth scenarios. The decision on investment in the next five G4 reactors for Newport will be made in 2020 and be based on projections for 2021 revenue.

4.1

12.3

19.4 19.5 19.1

H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19

PPE Additions £’m

Intangible Capitalisation• £5.7m intangibles capitalised in H1 FY19‒ £4.8m capitalised R&D‒ £0.9m purchase of intangible assets

• Full Year Guidance of £10-15m reiterated at the half year

Infrastructure expansionsubstantially complete• Newport Mega-Foundry has 10 tools installed

with the next 10 cleanrooms nearing completion

• Taiwan expansion has increased site capacity by 40%

• Future tool capex to scale for volume is discretionary and linear with future revenue opportunity

Strategy and Technology Update

Healthcare

Big Data

Sensing

LiDAR

Connectivity

Portable TelehealthMonitoring

Robotics and Automation

Autonomous Driving

Connected Vehicles

EnergyGeneration

LEDs

Solar Energy

IndustrialHeating

OfficeCommunications

SatelliteCommunications

5G Base Stations

5G Small CellNetworks

AugmentedReality

3D Sensing

PersonalDevices SecurityWiFi

Electrification

DiagnosticsHigh-Speed

Data Centers

AI

Machine Vision

Medical Imaging

Compound semiconductors everywhere

Smart Grids

Leading innovation from within

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5G Infrastructure Rollout:• 5G Base Stations• GaN on Si• GaN on SiC

3D Sensing Proliferation:• Low end smartphone• Wearables / consumer devices• Commercial and industrial

applications• Quasi Photonic Crystal for module

integration

Major Growth Drivers for IQEPotential addressable market growth of 25-30% CAGR over next 5 years

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Next 18 months Next 2 to 3 years Long TermHigh Speed Datacoms:• 10G & 25G DFBs

(Distributed Feedback Lasers)

• 10G & 25G APDs (Avalanche Photo Diodes)

• PIN detectors

Asian Market Wireless Demand:• Power Amplifiers

for handsets

3D Sensing Proliferation:• Android Market

(High/Mid end)• World-facing camera

(ToF)

Environmental & Health Monitoring

LiDAR

Connected Devices

Smart Grids

5G Infrastructure Rollout:• GaN for mm Wave / small cell networks• Lasers for backhaul networks

5G Handset Opportunity:• Filters and Switches (cREO)

3D Sensing Proliferation

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The 3D Sensing Market is set for Exceptional Growth

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2019 Next 3 to 5 YearsNext 18 monthso One major OEM, all phoneso New OEMs, high-end

phoneso 3DS for Proximity sensingo World Facing camera in

high-end Android

o Multiple OEMs with VCSELs in volume products

o Android proliferation of 3D Sensing

o Adoption in world-facing camera

o Security authentication standards drive adoption

o Cost reductions drive adoption in even low-end smartphones

o Augmented reality applications drive adoption

o More devices using VCSELso Higher power at safe wavelengthso Automotive in cabin and

development of LIDAR

Timing has been hard to predict but there is consensus on a large market opportunity

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IQE’s Mega-Foundry enables large-scale mass production of VCSEL’s, leveraging a long heritage

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IQE Remains Number 1 in VCSELs

IQE’s Market position is a result of

o Reputation as the leading global supplier of advanced wafer products and material solutions

o Superior product quality, uniformity and yield = superior reliability and economics

o Established supply chain relationships

o Unique IP and Know-how accumulated over 30 years

o World-leading Research and Development capability

o Commitment to scale and investment in capacity

o Internal dual-source capability for certainty of supply

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IQE has a roadmap to stay No.1

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Manufacturing Platform Increasing volume, lower unit cost

Wafer SizeLarger Die Size, lower cost

per chip, opens up Si chip fab capacity

Emission Wavelength Eye Safety, Higher Power for LIDAR

Integration and Miniaturisation

Lower unit cost per device, higher share for IQE, expands

market opportunity

300mm

200mm

150mm

High Speed Datacoms

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IQE DFB

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• DFB laser = Distributed Feed Back Laser

• Critical for fibre optic communications• Fibre to the premises (FTTX)• Data Centre• Core network

• DFB wafers : Base + grating + overgrowth

• IQE historically provided Base epi only

• We have developed a disruptive technology for grating:• NIL – Nano Imprint Lithography• High perform (flexible), high throughput and low cost• Further applications in VCSEL

• Multiple qualifications for “full service” wafers (2-3x value add)

Grating – viewed by Scanning Electron Microscope

XX X X X X X X X X X X X X X X X XXX XX XXX X XXX

Overgrowth

Grating

Base

5G Infrastructure Opportunity

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IQE’s 5G Infrastructure Opportunity

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Each element has its own T/R

5G Materials Choices

Si CMOS and SiGe require >10x the number of antenna elements

relative to GaN

1kHz 1MHz 1GHz 10GHz Frequency

Volta

ge R

atin

g

Inverters(Motor controls, PV, UPS)

IT & ConsumerPower Supplies

EV / HEV

GridWindRail

DC-DCConversion

CATV

Infrastructure A&D50V

200V

600V

1,200V

GaN uniquely positioned to address opportunities over unprecedented range

of operating voltage and frequency.

IQE GaN Markets

GaN Power Electronics

GaN RF

mmWave 5G

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1kHz 1MHz 1GHz 10GHz Frequency

Volta

ge R

atin

g

50V

200V

600V

1,200V

GaN / GaN

GaN/Si

GaN / SiCGaN/Si

andGaN/SiC

GaN Power Electronics

IQE GaN Products

GaN RF

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GaN Market Size Continues to Expand

Source: Yole (2019)

20182024

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5G Handset Opportunity

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RF Front End & Connectivity Market (2018-2025)

Source: Yole (2019)28

RF Front End & Connectivity Content

Source: Yole (2019)29

RF Front End & Connectivity – IQE Addressable Content

Source: Yole (2019)

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IQE’s Content Growth in Handsets

HBT PAs

HBT PAsHBT PAs

BiHEMT PAsBiHEMT PAs

Proximity sensors

3D sensorsFace recognition

TOF sensorsCamera focus Proximity sensors

3D sensorsWorld facing / AR-VR

TOF sensorsCamera focus

Accessory sensors 3D sensors

Face recognition

Integrated opticsVCSEL/DOE/WLO

SAW & BAW Filters

5G mm wave

Porous Si Switches

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