IQE, are the shorts closing? Watch for their results later this month

One share that I've been following for quite a while is IQE, a technology company on AIM that calls itself a global leader in advanced semi conductor wafers.

From the company website;

IQE's products are found in many leading-edge consumer, communication, computing and industrial applications, including a complete range of wafer products for the wireless industry, such as mobile handsets and wireless infrastructure, Wi-Fi, WiMAX, base stations, GPS, and satellite communications; optical communications, optical storage (CD, DVD), laser optical mouse, laser printers & photocopiers, thermal imagers, leading-edge medical products, barcode, high efficiency LEDs and a variety of advanced silicon based systems.

The manufacturers of these chips are increasingly seeking to outsource wafer production to specialist foundries such as IQE in order to reduce overall wafer costs and accelerate time to market.

http://www.iqep.com/about/

The share price can be quite volatile, both up and down. It is a blue sky opportunity that has great potential, most of the brokers covering the company have placed a much higher price target for it than its current low of around 18p. Many see 50-65p as the target range.


Why then has the share price been in a slump for the best part of the last 3 months, falling from around 37p to 18p a week or two ago? Well, this had something to do with it.

IQE, the maker of semiconductor materials, has dropped more than 14% on competition fears.

US giant Qualcomm, the world's leading supplier of chips for mobile phones, said it would enter IQE's radio frequency market.

Qualcomm introduced a new silicon-based radio frequency chip which could threaten IQE's product base, sending shares in the UK company down 4.75p to 28.75p in heavy trading volumes. Analyst Eoin Lambe at Liberum Capital said:

Importantly for IQE Qualcomm's solution is based on silicon (CMOS) while to date most of the radio frequency chips in mobile phones have relieved on IQE's epi wafers. This is obviously negative for IQE. Qualcomm has not released any detailed specifications at this point. Speaking to IQE, they believe that Qualcomm will initially target the low end of the Chinese smartphone market while most of the value is at the high end. No change to numbers but may dampen sentiment towards IQE.

http://www.guardian.co.uk/business/marketforceslive/2013/feb/22/iqe-semiconductors-competition-qualcomm

Short sellers seemed to have jumped on this, BlackRock holding a position of around 2.7% according to Shorttracker.co.uk.

http://www.shorttracker.co.uk/.

But are the shorts now beginning to unwind given that IQE's results for the half year are due on 24th July? These results are expected to be reasonably good, although the company itself hasn't said much for most of the last three months that the share price has been in decline. The share price has moved up and broken out of its slump in the last few days, suggesting that shorts might be running for cover, not wanting to get caught out if those results come in good on the 24th. Having said that, Shorttracker.co.uk still lists BlackRock as sitting on their 2.7% position.

Is the threat from Qualcomm really as serious as the share price fall suggests? Could be, but it might take some time for them to get a foothold assuming that they are entering IQE's market in a serious way. It might actually be easier for them, or someone else at the current price, to actually bid for IQE and enter the market that way. It is an unknown and market's do tend to overreact to such uncertainty.

If nothing else the next few weeks will be interesting to see what happens to the share price as the result date gets closer. Shorts that stay in will be hoping that it is bad, but right now momentum suggests that this one will continue to bounce off recent lows and it could be quite dramatic if the shorts do run for cover.