IQE revenue jumps 43% as AI photonics turns EBITDA positive in first half

IQE plc (AIM: IQE) has reported a sharp improvement in its first-half financial position as artificial intelligence data centres, photonics, defence and wireless demand lifted revenue 43% to £64.6 million and turned adjusted EBITDA from a £0.4 million loss into £6 million of profit. Photonics revenue increased 45% to £38.5 million, while wireless revenue rose 40% to £26 million, giving the company growth across both of its core reporting categories rather than leaving the turnaround dependent on one customer or application. IQE still reported a £12.6 million pre-tax loss, but that narrowed from £18.3 million, while fundraising and improving operations moved the balance sheet from £23.5 million of adjusted net debt a year earlier to £30.2 million of adjusted net cash. The company is also preparing to leave AIM for the London Stock Exchange Main Market during the first half of 2027 as management attempts to convert a dramatic operating recovery into broader institutional-investor access.

The results matter because IQE occupies an undercovered but strategically important position near the beginning of the semiconductor supply chain. The company manufactures compound-semiconductor epitaxial wafers using materials including indium phosphide, gallium nitride and gallium arsenide, which customers then process into lasers, radio-frequency devices, power electronics and other chips. AI infrastructure demand is particularly relevant to indium phosphide because optical links increasingly rely on high-speed lasers as data centres attempt to move enormous quantities of information between accelerators, switches and racks. IQE is now converting existing manufacturing capacity during the second half to support higher indium phosphide demand, meaning AI growth is beginning to influence not only orders but how the company allocates factory capacity.

Why did a 43% revenue increase create such a large change in IQE’s adjusted profitability?

IQE’s revenue increased by £19.3 million year over year, from £45.3 million to £64.6 million, while adjusted EBITDA improved by approximately £6.4 million from a small loss to £6 million of profit. Management attributes the change to higher factory utilization and a more favourable product mix, particularly the greater contribution from photonics.

This is a classic operating-leverage effect inside semiconductor manufacturing. Epitaxy facilities carry expensive equipment, specialist staff and fixed operating costs that must be supported even when customer demand is weak, making low utilization particularly damaging to profitability.

When volumes recover, a significant portion of incremental revenue can contribute to earnings because the factory does not need an equivalent percentage increase in fixed costs to produce more wafers. Higher-value photonics products can amplify that effect if their margins exceed those of the sales mix they replace.

IQE’s 2025 weakness therefore created a low base from which utilization improvements could generate disproportionately better earnings. The first-half result does not prove the company has reached sustainable full-cycle profitability, but it demonstrates what the existing manufacturing footprint can produce when demand and mix improve simultaneously.

The remaining £12.6 million reported pre-tax loss shows the turnaround is not complete. Depreciation, financing, restructuring and other costs still sit below adjusted EBITDA, meaning IQE needs further revenue and margin progress before positive adjusted operating metrics become consistent statutory profit.

Why is the 45% growth in photonics revenue particularly important for the AI data-centre story?

Photonics generated £38.5 million of first-half revenue, making it approximately 60% of group sales and larger than the wireless segment. Growth came from a combination of U.S. military and defence programme funding releases and continued AI and data-centre demand, which means the segment is benefiting from several structurally important markets.

The AI component arises from optical communications. Large accelerator clusters cannot rely exclusively on conventional electrical connections as bandwidth requirements and physical distances increase, so optical transceivers and lasers become essential for moving data between servers and network switches.

Indium phosphide is particularly important because it is widely used in high-speed laser and photonic components. IQE supplies epitaxial material from which customers manufacture those devices, placing it several stages upstream from the finished optical module installed inside a data centre.

That positioning creates both opportunity and distance from final demand. IQE can benefit from growth across several optical-transceiver suppliers rather than betting on one finished-product manufacturer, but it may have less visibility into hyperscaler spending because orders pass through component customers before reaching the company.

Management’s decision to convert more existing capacity to indium phosphide is therefore a meaningful signal. Capacity conversion carries opportunity cost because factory tools could otherwise support different product categories, so the company is effectively allocating manufacturing resources toward the expectation that optical AI demand will remain strong.

How much stronger is IQE’s balance sheet after moving from £23.5 million net debt to £30.2 million net cash?

The shift is substantial. IQE ended June with £41.6 million of cash and cash equivalents and £30.2 million of adjusted net cash, compared with £17 million of cash and £23.5 million of adjusted net debt in the comparative period. The improvement reflects the company’s 2026 fundraising alongside operating developments, so it should not be interpreted as £53.7 million of debt reduction generated entirely through business cash flow.

That distinction matters because operating cash generation remains modest. Reported cash flow from operations was £1.2 million during the first half, down from £3.6 million, after a £4 million working-capital outflow and £2.4 million of restructuring and strategic-review costs.

The stronger balance sheet nevertheless changes IQE’s risk profile. Semiconductor manufacturing requires investment ahead of customer revenue, and a company with net cash has more ability to convert capacity, support inventory and respond to customer demand without immediately seeking emergency financing.

Capital expenditure remained restrained at only £1.1 million of cash property, plant and equipment spending during the half. IQE is therefore initially meeting additional indium phosphide demand by converting existing capacity rather than committing immediately to a large greenfield expansion.

That is financially attractive while utilization remains below theoretical maximum levels. If AI-related optical demand grows enough to exhaust existing capacity, investors will eventually need to assess how much incremental capital is required for another expansion cycle.

Why is IQE planning to leave AIM for the London Stock Exchange Main Market in 2027?

IQE says it intends to seek admission to London’s Main Market during the first half of 2027 to broaden its institutional-investor base, improve liquidity and potentially support future inclusion in FTSE indices. The move would mark a shift in market status rather than an initial public offering, because IQE shares are already publicly traded on AIM.

The timing is logical after a strategic review and balance-sheet repair. Moving markets during a period of weak earnings and financing uncertainty would have offered little advantage, while a company showing rapid revenue growth and improving profitability has a stronger case for attracting larger funds.

Some institutions have mandates or liquidity requirements that make AIM holdings more difficult, meaning Main Market admission can widen the theoretical shareholder pool. Inclusion in recognised indices can further increase passive and benchmark-related demand if IQE eventually meets the relevant eligibility requirements.

The move does not improve the operating business by itself. Revenue, margins, customer concentration and semiconductor-cycle exposure remain the variables determining long-term value regardless of which London market hosts the shares.

It can, however, reduce the financing discount associated with being a smaller AIM-listed technology company if IQE demonstrates enough scale and governance consistency to attract mainstream institutional capital.

Can IQE’s full-year guidance be reached without another major step-up in second-half growth?

IQE continues to expect full-year 2026 revenue growth above 30% and adjusted EBITDA in the low-teens millions of pounds. The company generated £64.6 million of first-half revenue and £6 million of adjusted EBITDA, meaning the EBITDA target broadly requires the second half to produce at least a similar level of underlying profitability with some additional improvement.

Management says trading has continued strongly after the period end and that newly signed supply agreements create additional visibility. It also sees upside opportunities from optical communications for AI and data-centre infrastructure, suggesting existing guidance does not necessarily capture every potential order.

The biggest uncertainty is timing. Semiconductor suppliers can have strong order books while customer qualification, funding releases or production schedules move revenue between quarters, making a six-month period materially stronger or weaker without changing the long-term programme.

Wireless demand also remains important. Revenue increased 40% to £26 million because of market-share gains and newly qualified customer platforms, giving IQE a second source of growth if photonics ordering becomes uneven.

The company therefore does not need AI data-centre demand alone to carry the full-year result. That diversification improves the earnings story compared with a turnaround dependent entirely on one hot semiconductor theme.

What does IQE’s September 7 share price say about whether investors believe the turnaround?

IQE shares finished September 7 at approximately 47.65 pence, up about 0.4% in the session after trading as high as 50.4 pence. The stock was roughly 2% above its September 1 close of 46.7 pence across the latest five trading sessions and about 1.4% above the August 7 close of 47 pence over one month. The 52-week range remains exceptionally wide at approximately 4.68 pence to 72.8 pence, reflecting the dramatic repricing that followed financing, strategic restructuring and stronger AI-related demand.

The muted results-day move is informative because expectations had already increased considerably before the interim numbers. IQE shares gained 5.4% on September 4 and had already multiplied from the depressed levels reached during the company’s earlier financial stress, leaving investors with less reason to treat a return to positive adjusted EBITDA as a surprise.

The shares also remain about one-third below the 52-week high, indicating that the market has not priced a completely resolved turnaround. IQE is still loss-making on a statutory basis, customer demand remains cyclical and the company must prove the first-half utilization improvement can continue.

What has changed is the balance of risk. IQE now has £30.2 million of adjusted net cash, rapidly growing photonics sales, positive adjusted EBITDA and increasing exposure to AI optical infrastructure.

The next phase is no longer primarily about financial survival. It is about whether a compound-semiconductor supplier with a repaired balance sheet can convert AI-driven optical demand into sustainable statutory profitability before the next semiconductor downturn arrives.