The Face ID system was introduced in 2017

Credit: Apple

A minor design change to Apple’s upcoming iPhone has hit sales at a Welsh technology company that supplies the Silicon Valley giant.

Aim-listed IQE said sales of a key component in smartphone facial recognition systems had fallen by 26pc in the first half of 2021.

It comes as Apple prepares to announce a new iPhone later this month that is expected to feature a smaller 3D sensor chip used in the Face ID technology that unlocks phones and authenticates payments.

While the smaller chip will allow Apple to reduce the size of the unsightly "notch" that features at the top of the iPhone’s screen, each chip requires a smaller amount of the "VCSEL" wafers that IQE supplies.

The company said revenues in the photonics division that includes the wafers fell by 7.6pc as it posted a 2.5pc decrease in half-year revenues to £79.5m. Pre-tax losses halved to £3m, largely due to lower costs.

Drew Nelson, IQE’s founder who stepped down as chief executive on Tuesday, said the company had developed a next generation of wafer that would allow future smartphones to effectively eliminate the notch. IQE, like most of Apple’s suppliers, is barred from confirming its work with the iPhone maker by strict non-disclosure agreements.

Mr Nelson’s departure as chief executive comes after the recent sale of Newport Wafer Fab, the Welsh semiconductor factory where he was chairman and owned a major stake, to a Chinese-owned microchip company. The deal is currently being reviewed on national security grounds and could be reversed.

However, IQE said it expected its investors would challenge any similar takeover bid for the company. Tim Pullen, the company’s chief financial officer, said IQE had a series of long-term shareholders that felt the company was undervalued.

IQE said it was close to appointing a chief executive to replace Mr Nelson, who has said he will step down to focus on fostering a cluster of semiconductor companies in south Wales. 

"Around the world, every major nation is building its own sovereign supply chains, because they recognise the critical importance of semiconductor technology," he said. 

"The UK is lagging a bit behind in this particular area."

Mr Nelson is seeking to raise funds for an advanced factory near the Newport Wafer Fab site. 

IQE shares fell by 12pc as it said it expected full-year revenues to be flat on last year.