March 20, 2019 / 12:11 PM / 2 months ago

UPDATE 2-Weak smartphone demand hits IQE's earnings; shares tumble

* Core profit falls below its forecast in January

* Sees weak profit and revenues in H1 2019

* 2019 forecast "prudently soft" - Peel Hunt analysts

* Shares down 9 pct (Adds details on outlook, background)

By Tanishaa Nadkar

March 20 (Reuters) - Britains's IQE Plc missed its own full-year core earnings forecast as weakness in the smartphone market hit demand for semiconductor components, prompting its chief executive to call 2018 "a very difficult and challenging year".

Smartphone makers, including Apple Inc and Samsung , have tempered their sales outlook as they wrestle with a worldwide slowdown in the market.

IQE, which makes semiconductor wafers for chips used in Apple products among others, said full-year adjusted core profit fell 29 percent to 26.4 million pounds in 2018, below its forecast in January of at least 27.5 million pounds.

IQE shares, which have nearly halved in the past 12 months, fell more than 16 percent in early trading before clawing back some of their losses to trade down 9 percent at 75.21 pence.

CEO Drew Nelson said the company's problems had been compounded by a "well-heralded softness in the smartphone market".

The company, which supplies wafers, or thin layers of silicon-based material used in making computing chips, had warned in November of a drop in orders in the last quarter at one of its largest customers for 3D sensing laser diodes.

Analysts flagged the customer as U.S.-based Lumentum Holdings Inc, the main supplier of the Face ID technology used in the latest generation of iPhones.

IQE said it expects the market weakness and the unwinding of an inventory build of its 3-D sensing technology products to hit profit and revenues in the first half of 2019.

However, the company sees growth in the second half, primarily driven by its push into 5G wireless and photonics products.

It forecast adjusted operating margins above 10 percent in 2019, while revenue on a constant currency basis is expected to rise about 9 percent.

Peel Hunt analysts said the 2019 forecast was "prudently soft" and cut their revenue and adjusted earnings per share estimates for the current year.

Revenue rose 1.1 percent to 156.3 million pounds ($207.00 million) in the year ended Dec 31. ($1 = 0.7551 pounds) (Reporting by Tanishaa Nadkar in Bengaluru; Editing by Anil D'Silva and Jan Harvey)

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