I didn’t want to let this news item slip away without comment because it has some serious implications for the GaAs epitaxial wafer market. On January 10 2013, IQE announced they agreed to acquire the compound semiconductor epiwafer manufacturing business of Kopin Corporation for total consideration of $75 million in cash. This follows up on the announcement earlier in the 2012 that IQE had signed what they describe as a “multi-faceted agreement” to acquire the entire in-house MBE epiwafer manufacturing unit of RFMD. In exchange for the transfer of these assets, there will be no upfront cash outlay. Instead, the two companies have agreed to a seven-year wafer supply agreement, with a minimum purchase commitment of $55 million over the first two years. This agreement will result in IQE being the exclusive supplier of all of RFMD’s MBE wafer requirements and a majority of its MOCVD wafer requirements under a discounted pricing arrangement.

In our last Forecast and Outlook Report: Markets for Semi-Insulating GaAs Epitaxial Substrates: 2011 - 2016, I concluded that IQE was the dominant merchant vendor of MBE epitaxial substrates with almost 85% of the market and the largest overall merchant supplier by virtue of their ability to supply both MBE and MOCVD substrates. My analysis ranked RFMD as the fourth largest and Kopin as the third largest overall suppliers of epitaxial substrates. With the acquisitions, IQE is poised to be the dominant epitaxial wafer manufacturer with more than 50% of the entire market. Their dominance in the MBE market is enhanced by RFMD’s capability and the Kopin acquisition roughly triples their MOCVD capability. This allows IQE to vault from a distant third in this segment past VPEC into first place. The enhanced MOCVD capability enables them to get a firm foothold in the growing handset PA market through the wafer supply agreement with RFMD and the customer relationship Kopin had with Skyworks.

It appears clear that IQE will have a stranglehold on the epiwafer segment. Based on 2011 results, they will be almost three times as large as VPEC, their closest competitor. The deals make perfect sense for IQE; they extend their dominance in the MBE segment and gain a much-needed boost in the MOCVD segment, along with relationships to RFMD and Skyworks. From the RFMD perspective, most if not all of their handset switches have transitioned to SoI as the technology of choice, making it difficult to keep the 16 operational MBE tools they are transferring to IQE busy. While Kopin has been a very strong competitor in the III-V epitaxial wafer market segment, they have obviously chosen to cast their lot with the display technology they have been developing and with that focus, the epiwafer portion of their business no longer fit the company’s direction.

These announcements, coupled with an earlier announcement of an exclusive supply contract and strategic investment in CPV module manufacturer, Solar Junction Corporation was a very loud statement of IQE’s intention to consolidate the epiwafer space and diversify end markets. The challenge in acquisitions is always the successful integration of the new parts, but barring any missteps in that area, IQE looks poised to be the dominant epitaxial wafer supplier. It will be interesting to see how these acquisitions change the epitaxial wafer landscape, so stay tuned for more insights and forecasts in the upcoming months.

-Eric