IQE plc IQE
Muddy Waters is short IQE: the compound-semi maker inflated 2015/2016 net income by 58.5%/25.4% via transactions with its Cardiff University JV — an alter ego, not an arm's-length partner.
Thesis
Muddy Waters is short IQE plc, a UK-listed compound-semiconductor materials supplier, arguing the company is an egregious accounting manipulator. At the center of the thesis is Compound Semiconductor Centre (CSC), the 50/50 JV formed with Cardiff University in 2015 that Muddy Waters believes is effectively an IQE alter ego — same management, same Cardiff office, zero patent filings, and a -105.9% gross margin. IQE contributed PP&E and IP to CSC at marks 4.6x book value, then recognized gains and licensing revenue on those transfers, inflating reported net income by 58.5% in 2015 and 25.4% in 2016. A 1H 2017 intangibles spike to £9.6m with suddenly reduced disclosure suggests IQE pivoted to aggressive expense capitalization once CSC's cash was exhausted, while insiders sold £7.8m of shares between May and July 2017.
SCQA
IQE plc is a UK-listed (AIM, £851m market cap) compound-semiconductor materials supplier whose shares have rallied on strong reported earnings growth since forming a 50/50 joint venture, CSC, with Cardiff University in 2015.
Muddy Waters finds the CSC transactions lack substance: IQE dominates the JV (same management, same office, no patents), inflating 2015/2016 net income 58.5%/25.4% via PP&E transfers marked at 4.6x carrying value and divergent IP accounting.
Muddy Waters is short the stock and calls on IQE to publicly release the independent valuation report underpinning the £12m PP&E mark, and urges shareholders to re-underwrite IQE on financials adjusted to exclude CSC gains and 1H 2017 capitalization.
No explicit target price, but adjusted 1H 2017 net income is 68.6% below reported; exhaustion of CSC's funding, collapsing JV contribution, and insiders' £7.8m of share sales signal the earnings trajectory since 2015 cannot be sustained.
The three reasons
- 1
IQE's 2015 and 2016 net income overstated by 58.5% and 25.4% via non-substantive CSC joint-venture gains
- 2
CSC is effectively an IQE alter ego — same management, same Cardiff office, zero patents, -105.9% gross margin
- 3
Insiders sold £7.8m of stock in mid-2017 as 'intangible investments' spiked 108% with reduced disclosure
Primary demands
- Release in full the purportedly independent third-party valuation report supporting the £12.0m PP&E mark transferred to CSC
- Adjust historical 2015 and 2016 net income downward by 58.5% and 25.4% to exclude non-substantive gains on transactions with CSC
- Adjust 1H 2017 net income downward by ~£5m (69%) to account for aggressive capitalization of expenses
KPIs cited
Pattern membership
Where this document fits across the library's 12 rhetorical / structural patterns.
Precedents cited
- Noble Group Ltd. (prior Muddy Waters short on abusive third-party valuation reports)
Notable slides (5)
Notes
Classic Muddy Waters forensic accounting research note — prose-dense Word-style report (not a slide deck) with inline tables, screenshots of LinkedIn profiles, a hand-drawn-feel 'Suspicious Spike in Investments' chart, and an annotated 'same management / same office' exhibit linking IQE and CSC boards. Thesis is a textbook related-party/alter-ego short: IQE used a 50/50 university JV as an earnings-laundering vehicle. CEO-quote contradiction uses IQE's own 'highest standards of corporate governance, transparency, and integrity' line against them. No explicit price target — Muddy Waters reframes financials and lets the restated numbers do the work. References ShadowFall's earlier (Feb 2 2018) IQE report but positions its research as independent and broader.