IQE plc (AIM: IQE, “IQE” or the “Group”), the leading global supplier of advanced semiconductor wafer products and wafer services to the semiconductor industry, has signed a multi-faceted agreement to acquire the entire in-house MBE epi-wafer manufacturing unit of RFMD (Nasdaq:RFMD), a global leader in the design and manufacture of high performance RF components and compound semiconductor technologies, and has secured a long-term wafer supply agreement for exclusive provision of all of RFMD’s MBE wafers and for provision of a majority of RFMD’s MOCVD wafer requirements.
- IQE acquires fully furnished epi manufacturing plant, including 16 operational MBE tools
- Seven-year wafer supply agreement
- Significantly extends leadership position in wireless industry supply
- Powerful position in CPV market with up to $35m revenue capacity for CPV wafers
- Consideration effectively funded through future wafer discounts
- Immediately earnings enhancing, significantly earnings accretive in future years
Dr Drew Nelson, President and CEO of IQE, said:
“This landmark agreement with RFMD, one of the true global leaders in the wireless semiconductor industry, provides us with a significant step up in our manufacturing capacity, bringing substantial financial and scale benefits to the Group. This is a clear win-win for both organisations.
“The deal secures IQE world class epi-wafer production assets and staff, together with a long term wafer supply agreement, further strengthening our leadership position in the supply of wafers to the global wireless industry.
“The spare capacity currently existing within the transferred facilities will be applied to the manufacture of CPV solar wafers, enabling IQE to rapidly build a global leadership position in the supply of wafers for the burgeoning CPV sector as a result of our previously announced agreement and exclusive supply contract with CPV technology partner Solar Junction.”
The assets being transferred to IQE include a fully fitted clean room of over 90,000 sq.ft, 16 MBE manufacturing systems and equipment, all housed in a 135,000 sq.ft. stand-alone building in Greensboro, North Carolina. The value of the transferred assets is approximately $27 million. The local management and employees for the unit (consisting of 70 people) will also transfer directly to IQE.
There will be no upfront cash outlay for the transfer of the assets, resulting in no IQE shareholder dilution. In exchange for the transfer of the assets, the parties have agreed to a long term wafer supply agreement with a minimum purchase commitment of $55m over the first two years, whereby IQE will supply all MBE wafer requirements and a majority of RFMD’s MOCVD wafer requirements under a discounted pricing arrangement.
The transaction will result in major enhancements across all key Group activities, particularly in our products for the wireless sector through increased purchasing power and greater manufacturing efficiencies.
IQE intends to use unallocated capacity from this facility to rapidly accelerate its wafer supply to meet the dramatically growing demand for CPV Solar products in relation to the technology transfer and exclusive wafer supply agreement with Solar Junction, announced earlier this year. This is expected to allow the wafer production of solar products of up to $35 million annually without the need for significant up-front capital expenditures by IQE.
The transaction will be immediately revenue and earnings enhancing to IQE, whilst free cash flow generation will reflect the discounted wafer pricing agreed between the parties.
Similarly, RFMD expects the outsourced wafer supply model to improve its operating performance by lowering its manufacturing costs, improving its return on invested capital, and supporting more predictable financial results.
The transaction is expected to close within a few days.