One of Wales' most successful technology companies has been at the centre of excitement in the City of London this week.

IQE makes compound semiconductors that are used in mobile phones among other applications.

The Cardiff-based company is listed on the London Stock Exchange's Alternative Investment Market (AIM) for smaller companies, and its stock has been much sought after by investors with its share price rising from 83.5p in July to a high if 178.75p in November.

But since then the share price has fallen until on Monday it was down to 102p.

That day the company put out a statement reassuring investors of the strength of the company's financial position, and the share price has rallied to trade at around 113p. But what brought about the slide in the first place?

IQE's share price has slipped around 40% since November. A large part of the slide - and what has been at the heart of the controversy this week - has been short selling.

What is short selling?

Short selling is a practice whereby investors try to profit from an anticipated fall in the value of a company's stock. This is how it works:

1. You think a company's stock is going to fall in value. So you borrow 100 shares and sell them at today's price of £50 each, making £5,000.

2. A week later the share price has fallen to £40. You buy 100 to return the ones you borrowed, at a total price of £4,000, pocketing the £1,000 as profit.

What's wrong with short selling?

Short sellers are often blamed for driving down the value of a company's shares. At the height of the financial crisis in 2008 it was temporarily banned for some financial shares after the dramatic fall in the value of HBOS stock which led to that bank being taken over by Lloyds TSB.

If a number of short sellers start selling a company's shares at the same time it will have the effect of pushing down the share price, especially as many of the institutional investors that engage in the practice are well known to the market.

However, short sellers argue that they are simply exposing the fact that a company's financial position is not as strong as claimed. They also argue that they are no more manipulating the market than long traders who buy shares in the hope of the price rising.

What's happened with IQE

An IQE technician

IQE stock was described by the Financial Times this week as one of the most shorted in the UK. But last week a little known investor called ShadowFall Capital & Research issued a report in which it cast doubt on the company's financial strength.

ShadowFall, which holds a short position in IQE, raised concerns about the company's governance, profitability and sources of cash, according to reports in the Sunday Times.

The report had the effect of driving down the price of IQE by 11% when trading began on Monday morning. But they rallied after IQE issued its rebuttal in which it said that ShadowFall's allegations were "without merit and provide a misleading analysis of the Company's financial position."

The IQE statement went on to explain the workings of its joint venture agreements and said the company expects its revenue for 2017 to be above market expectations and not less than £150m.

About IQE

IQE was set up in Cardiff in 1988. Its co-founder and current chief executive officer Drew Nelson is a former BT researcher with a PhD in semiconductor physics.

Its semiconductor wafer products are used in a wide range of high tech applications, from mobile phones to solar panels. Speculation that it was supplying Apple for the latest model iPhone was part of the reason for the surge in its share value last year.

The company has seen its revenues rise steadily since 2014, reaching £132.71m in 2016. However, pre-tax profits were down slightly to £19.03m.