Final Results

IQE PLC
20 March 2002


FOR IMMEDIATE RELEASE                                     20TH MARCH 2002


                                   IQE plc

                    4TH QUARTER AND FULL YEAR RESULTS, 2001


IQE plc (IQE), the world's leading global outsource supplier of customised
epitaxial wafers to the semiconductor industry, is pleased to announce its 4th
Quarter and Full Year Results for the period ended 31 December 2001.


Key Points


*    Sales for the full year up by 40% to £42.047m (2000: £30.117m).

*    Operating loss for the full year before goodwill and exceptionals at
     £3.467m, compared with a profit in the prior year  (2000: £1.995m).

*    Q4 sales at £7.696m, 27% decrease compared to the same period in 2000.
     (Q4/2000: £10.478m).

*    Q4 operating loss before goodwill amortisation and operating exceptional
     items at £3.795m, compared with a profit in the same period in 2000 
     (Q4/2000: £1.008m).

*    Q4 Operating cash outflow held at £4.516m, and capital expenditure reduced
     to £2.784 m compared to £14.559m in the same period in 2000.

*    Agreements signed with Motorola for exploitation of their revolutionary 
     GaAs on silicon technology. IQE is the first licensee with a fifteen month 
     exclusive supply arrangement.

*    Motorola makes a significant equity investment in IQE, followed by
     successful Placing and Open Offer of 13.152m shares, raising £24.958m (net 
     of expenses).

*    Continuing significant progress at IQE Silicon Compounds with successful
     completion of additional customer qualification programmes and receipt of 
     pilot production orders, including for SiGe products. Subsequent to the 
     year end, strategic partnership established with AmberWave for high volume 
     manufacture of epiwafers based on their proprietary (epsilon)MOS TM 
     strained silicon technology.

*    Continued success in new product developments particularly with InP HBTs,
     InGaP HBTs, APDs, 1.3micron VCSELS and SiGe.


Commenting on the results, Dr Drew Nelson, President and CEO, said

 'As previously reported, trading remains difficult.  However, IQE has continued
to build a very powerful product portfolio, which are creating some unique
opportunities for the Group, including our partnership with Motorola and the
strategic partnership with Amberwave on strained silicon technology. Our cash
position is strong, we are keeping a tight control on costs and we do not
require high levels of ongoing capex to increase revenue significantly. As the
market returns across the various semiconductor sectors, we feel IQE is uniquely
placed to benefit, particularly as we believe outsourcing is poised to become a
key theme with many companies, as evidenced by the increasing number of
outsourcing wins for IQE during the last few months.'


For further information please contact:

Drew Nelson, President and CEO, IQE plc                          (029) 20 839405
Richard Clarke, Finance Director, IQE plc                        (029) 20 839407
Tim Thomson/Nicola Cronk, Buchanan Communications                [phone]



4th QUARTER AND FULL YEAR RESULTS


INTRODUCTION

Although there were some signs of recovery in the wireless electronics market in
the 4th quarter, this was offset by further deterioration in the opto-electronic
market, where the component manufacturers (the main users of the Group's wafer
products in this sector) continue to suffer from low demand and excess
inventories as end user capital expenditure continues to fall. However, despite
these difficult market conditions, IQE was able to show a 40% increase in sales
for the year overall and a positive EBITDA £2.227m.


RESULTS

A further reduction in production volumes of opto-electronic products in Q4
combined with a slowing shortage of customer funded new development programmes
meant that sales for the quarter were £7.696m, 7% less than the previous quarter
and 27% down year on year (Q4/2000: £10.478m). However, for the full year to
December, sales were 40% higher than the previous year at £42.047m (2000:
£30.117m). The improvement in turnover for the year was a result of a strong
first half performance in the opto-electronics sector.  The new reactors
installed in the second half of the previous year were brought on-line and we
had  a full year's contribution from Wafer Technology as well as the initial
sales from IQE Silicon Compounds. Largely as a result of the high level of
operational gearing in the UK and US III-V operations, gross margins in Q4, at
-1.3%, were much lower than the previous quarter (Q3/2001: 15.8%) due to
capacity utilisation issues. However, the US operation was also adversely
impacted by lower sales margins and Wafer Technology suffered from a weaker
product mix due to the decline in demand for Indium Phosphide and Gallium
Arsenide substrates. As inventories are depleted, these trends will be reversed.

In-house research and development effort in Q4 was £0.894m, representing 11.6%
of sales (Q3/2001: £1.602 m, 19.5% of sales), to support new products such as
InP HBTs, long wavelength VCSELs, GaInP HBTs, Avalanche Photodiodes (APDs) and
GaAs on Silicon technology, all of which was expensed in the quarter. This
included the £ 0.250m of research and development costs which had been
capitalised earlier in the year. Total research and development costs for the
twelve months amounted to £3.792 m (2000: £1.870 m), which was equivalent to
9.0% of sales (2000: 6.2% of sales). SG&A expenses were higher than in the
previous quarter at £2.800 m (Q3/2001: £1.928 m), largely due to increases in
year end provisions for doubtful debts and severance costs.

As a consequence of this in-house R&D, the Group incurred an operating loss for
the quarter before goodwill amortisation and operating exceptional items of
£3.795m, compared with a profit in the corresponding period in 2000 (Q4/2000:
£1,008m) and a loss in the previous quarter of £2.228m. Cumulatively, for the
full year, the Group generated an operating loss before goodwill and
exceptionals of £3.467m, compared with a profit in the prior year of £1.995m.
This represents an operating margin of -8.2% as against 6.6% for last year.
After crediting net interest income of £0.211m (2000: £1.208m) and charging
operating exceptional items of £0.759m (2000: Nil) and goodwill amortisation
relating to the Wafer Technology acquisition of £1.835m (2000: £0.209m), the
Group operating result for the year before tax was a loss of £5.850m (2000:
profit of £2.994m). The after tax loss was £5.580m (2000: profit of £1.809m) and
the basic loss per share was 3.38 pence (2000: earnings per share of 1.24
pence).  Excluding goodwill amortisation, the loss per share was 2.27 pence
(2000: earnings per share of 1.38 pence).

Excluding capital expenditure, the Group incurred an operating cash outflow in
the quarter of £4.516m (Q4/2000: inflow of £5.113m) as a result of the operating
losses and a substantial reduction in creditors, which more than offset
reductions in debtors and stocks. For the twelve months the operating cash
outflow totalled £7.066m (2000: inflow of £10.949m). A positive cash flow in the
first quarter was eroded by working capital increases in the second quarter, in
particular a short term increase in raw material stocks caused by the market
slowdown, and further offset by the operating losses and reductions in creditors
incurred in the second half. Having reduced substantially in Q3, capital
expenditure reduced further in Q4 to £2.784m (Q3/2001: £3.475m) following the
completion of the initial investment programme for IQE Silicon Compounds. A
significant portion of this related to equipment required for the GaAs on
Silicon development. Total capital expenditure for the year (net of lease
financing) amounted to £25.170m (2000: £33.566m), bringing the net cash outflow
for the year before financing to £31.704m (2000: £35.522m). As a result of the
funds raised in Q4 through the Placing and Open Offer, the reduction in net cash
funds for the year was only £8.980m.


OPERATIONS

During Q4, the Group was adversely affected by a slowing of new development
contracts and a further decline in production orders from opto-electronic
manufacturers, who continue to suffer from low end user demand and excess
inventories as end user capital expenditure continues to fall. As a consequence,
in order to reduce costs, the headcount in the UK epiwafer operation was reduced
by 30 early in the new year. However, considerable progress was made in new
product developments for next generation systems, particularly in InP HBTs,
GaInP HBTs, long wavelength VCSELs, and SiGe products.

In the wireless marketplace, the Group saw definite signs of improvement in
trading conditions in Q4, with some significant production orders agreed with
customers, however, the upturn remains patchy.  New product development activity
continues to be successful, with the Group's InP HBT wafers now designed into
several new customer products. However, the main focus of R & D effort is on the
revolutionary Motorola Three Five on Silicon ('TFOS') technology, on which
considerable progress has been made. In particular, substantial modifications
have been made to one of the larger MBE reactors in the US to produce TFOS
substrates in sufficient quantities to support third party evaluation
programmes. Discussions with several large companies on early adopter programmes
are progressing.

Wafer Technology continues to perform well on specialist wafer products,
although their more mature business has also suffered as a consequence of the
very difficult market conditions.  Q4 saw some recovery in gallium arsenide
substrates, but this was more than offset by a reduction in indium phosphide
product, which also had a negative margin impact. The high gallium metal prices,
which adversely impacted margins in Q3 have now reduced substantially, although
the impact on costs continued to be felt throughout much of Q4. Overall, largely
due to its broad product range and tightly controlled operating costs, Wafer
Technology continues to outperform its competitors.

IQE Silicon Compounds has now signed up 31 NDAs in total and has run 30
qualification programmes for 18 customers, including a number of silicon
germanium structures on which there has been excellent customer feedback.  A
number of qualification programmes have now successfully completed and as a
result the company has been running pre-production orders for some large
European IC manufacturers.  Subsequent to the quarter end the Group announced
that a strategic partnership had been established with AmberWave for high volume
manufacture of epiwafers based on their proprietary (epsilon)MOS TM strained
silicon technology. Strained silicon has been identified as a solution to
overcome the physical speed limitations presented by the material properties of
elemental silicon and offers the silicon industry immediate and cost effective
access to epiwafers that will increase speed and reduce power in conventional
CMOS, facilitating substantial advancements in digital, wireless and
opto-electronic applications.


BOARD CHANGES

Shortly after the year end, the Group was pleased to announce two Board changes.
Dr Godfrey Ainsworth was appointed Non Executive Chairman as Dr Nelson split his
role of Executive Chairman and Chief Executive and became President and Chief
Executive. Secondly, we were pleased to announce the appointment of Mr Simon
Gibson as Non-Executive Director.


TRADING PROSPECTS

As we previously noted, due to the ongoing decline in the opto-electronic
communications industry and the patchy recovery in the wireless sector, IQE has
continued to experience an extremely difficult trading environment in the first
quarter of 2002.  Although other areas of the business are moving ahead,
including optical storage and IQE Silicon Compounds, where successful
qualifications are continuing to be completed, the production ramp in these
areas has not been swift enough to offset the decline in the optical
communication products. As a result, it is expected that trading in the first
half of 2002 will be weaker than the second half of 2001. However, we expect a
steady improvement in trading to flow through in the second half of the year.

The Board believes that, as the semiconductor industry recovers, the recent
agreements with Motorola relating to the commercialisation of the GaAs on
silicon technology and Amberwave in connection with their strained silicon
technology open up exceptionally exciting opportunities for the Group.  With
outsourcing becoming a much more significant part of the compound semiconductor
industry, as evidenced by recent outsource 'wins', IQE is well placed to
consolidate its position as the leading outsource wafer manufacturer within the
semiconductor industry.


Dr Drew Nelson
President & CEO
IQE plc


IQE PLC
Accounts for 12 months to December 2001

                                            3 months to  3 months to     12 months to  12 months to
PROFIT AND LOSS ACCOUNT              Note   31 Dec 2001   31 Dec2000      31 Dec 2001   31 Dec 2000


(All figures GBP000s)


Turnover                                          7,696       10,478           42,047        30,117
Cost of Sales                                   (7,796)      (6,826)         (32,381)      (19,785)

Gross Profit                                      (100)        3,652            9,666        10,332
Gross Profit %                                    (1.3)         34.9             23.0          34.3

S G and A Costs :
   Research/Development                           (894)        (458)          (3,792)       (1,870)
   Selling/General/Administration               (2,800)      (2,187)          (9,341)       (6,468)

Operating Profit/(Loss) before Goodwill/        (3,795)        1,008          (3,467)         1,995
Exceptionals
Operating Profit/(Loss) % before Goodwill        (49.3)          9.6            (8.2)           6.6
/Exceptionals

Goodwill Written off                  2           (472)        (209)          (1,835)         (209)
Exceptional Items                     3           (253)          (0)            (759)           (0)

Operating Profit/(Loss) after                   (4,520)          799          (6,061)         1,786
Goodwill/Exceptionals
Operating Profit/(Loss) % after Goodwill/        (58.7)          7.6           (14.4)           5.9
Exceptionals

Interest Received/(Paid)                          (109)          589              211         1,208

Net Profit/(Loss) before Taxes                  (4,629)        1,388          (5,850)         2,994
Net Profit/(Loss) %                              (60.2)         13.2           (13.9)           9.9

Current Taxes                                     (418)          555            (103)            75
Deferred Taxes                                      640      (1,260)              373       (1,260)
Dividends                                             0          (0)              (0)           (0)

Net Profit/(Loss) after Taxes                   (4,407)          683          (5,580)         1,809


Basic Earnings Pence/Share                       (2.67)         0.47           (3.38)          1.24
Basic Earnings Pence/Share excl                  (2.39)         0.61           (2.27)          1.38
Goodwill
Diluted Earnings Pence/Share          5          (2.67)         0.45           (3.38)          1.18
Diluted Earnings Pence/Share excl     5          (2.39)         0.58           (2.27)          1.32
Goodwill

Net Profit/(Loss) before Interest/
Taxes/
Depreciation and Amortization                   (2,465)        2,024            2,227         4,832
(EBITDA)


                                                                As At          As At
BALANCE SHEET                                             31 Dec 2001    31 Dec 2000


(All figures GBP000s)

Fixed Assets :
   Intangible Fixed Assets                                     34,658         36,542
   Tangible Fixed Assets                                       74,196         47,848
   Total Fixed Assets                                         108,854         84,390

Current Assets :
   Stocks                                                      12,277          7,885
   Debtors                                                      7,429         10,311
   Cash and Bank                                               30,532         39,512
   Total Current Assets                                        50,238         57,708

Creditors Falling Due within One                             (11,879)       (17,406)
Year

Net Current Assets                                             38,359         40,302

Total Assets less Current                                     147,213        124,693
Liabilities

Creditors Falling Due after One
Year :
   Deferred Income                                              (173)           (69)
   Deferred Tax Liability                                     (1,217)        (1,590)
   Long Term Borrowings                                       (8,211)        (5,438)

Net Assets                                                    137,611        117,596


Capital and Reserves :
   Called Up Share Capital                                      1,824          1,633
   Merger Reserve                                               (605)          (605)
   Share Premium Account                                      136,661        111,802
   Shares to be Issued                                            938            988
   Retained Earnings                                          (2,490)          3,090
   Other Reserves                                               1,284            688

Total Equity Shareholders' Funds                              137,611        117,596


The financial statements were approved by the Directors of IQE plc on 19 March
2002


JL COVENTRY
Company Secretary


CASH FLOW STATEMENT

                                          3 months to   3 months to        12 months to   12 months to
                                          31 Dec 2001   31 Dec 2000         31 Dec 2001    31 Dec 2000

(All figures GBP000s)

Net Inflow/(Outflow) from                     (4,516)         5,113             (7,066)         10,949
Operations

Returns on Investment and
Servicing Finance :
   Interest Received/(Paid)                     (109)           589                 211          1,208

Capital Expenditures :
   Purchases of Fixed Assets less
   Leases Received
                                              (2,784)      (14,559)            (25,170)       (33,566)
   Payments to Acquire Investments in
   Subsidiaries
                                                    0      (13,968)                   0       (13,968)
   Capitalized Development Costs                  250             0                   0              0

Dividends Received/(Paid)                           0             0                   0              0

Taxes Received/(Paid)                              34         (110)                 322          (144)

Net Inflow/(Outflow) before                   (7,127)      (22,936)            (31,704)       (35,522)
Financing

Financing :
   Issues of Ordinary Share Capital            24,958          (22)              25,049         67,357
   Loans Received/(Repaid)                      (168)           (8)               (462)          (416)
   Leases (Repaid)                              (645)          (24)             (1,863)           (24)

Net Inflow/(Outflow) from Financing            24,145          (54)              22,724         66,917


Increase/(Decrease) in Cash and
Bank Overdrafts                                17,018      (22,990)             (8,980)         31,395



RECONCILIATION OF PROFIT TO CASH
INFLOW/(OUTFLOW) FROM OPERATIONS

                                        3 months to   3 months to         12 months to   12 months to
                                        31 Dec 2001   31 Dec 2000          31 Dec 2001    31 Dec 2000
(All figures GBP000s)


Operating Profit after Goodwill/            (4,520)           799              (6,061)          1,786
Exceptionals

Depreciation Charged                          1,452         1,017                6,422          2,838
Goodwill Written off                            472           209                1,835            209
(Gain)/Loss on Sale of Fixed Assets               0            30                    0             30
(Increase)/Decrease in Stocks                 1,581       (1,632)              (4,392)        (4,013)
(Increase)/Decrease in Debtors                3,125         1,049                2,882        (1,157)
Increase/(Decrease) in Creditors            (6,749)         3,647              (7,857)         11,280
Grants Released                               (486)           (6)                (504)           (24)
Grants Received                                 608             0                  608              0

Net Cash Inflow/(Outflow) from              (4,516)         5,113              (7,066)         10,949
Operations



RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS


                                             3 months to   3 months to     12 months to      12 months to
(All figures GBP000s)                        31 Dec 2001   31 Dec 2000      31 Dec 2001       31 Dec 2000


Increase/(Decrease) in Cash                       17,019      (22,990)          (8,980)            31,395

Loans (Received)/Repaid                              168             8              462               416
Leases Repaid                                        645            24            1,863                24

Change in Funds Resulting from Cash               17,832      (22,957)          (6,655)            31,836
Flows

New Finance Leases                                 (282)       (2,590)          (7,054)           (2,590)

Net Movement                                      17,550      (25,547)         (13,709)            29,246
Net Funds at Start                                 1,554        58,364           32,813             3,571
Exchange Differences                                   1           (3)                0               (3)

Net Funds at Close                                19,104        32,813           19,104            32,813


Analysis of Net Funds :
   Cash and Bank                                  30,532        39,512           30,532            39,512
   Debt Due after One Year                       (2,899)       (3,527)          (2,899)           (3,527)
   Debt Due within One Year                        (674)         (508)            (674)             (508)
   HP Creditors/Finance Leases                   (7,855)       (2,664)          (7,855)           (2,664)

   Total                                          19,104        32,813           19,104            32,813



RECONCILIATION OF UKGAAP TO IAS

                                                3 months to   3 months to         12 months to  12 months to
                                                31 Dec 2001   31 Dec 2000          31 Dec 2001   31 Dec 2000

(All figures GBP000s)


(1) Statement of Cash Flows
The following shows the statement of cash
flows as if they had been presented under IAS

Cash Inflow/(Outflow) from Operations               (4,482)         5,002              (6,744)        10,804
Cash Inflow/(Outflow) from Investing                (2,643)      (27,938)             (24,959)      (46,326)
Cash Inflow/(Outflow) from Financing                 24,145          (54)               22,724        66,917

Net Increase/(Decrease) in Cash
and Cash Equivalents                                 17,019      (22,990)              (8,979)        31,395

Opening Cash and Cash Equivalents per IAS            13,513        62,502               39,512         8,117
Exchange Difference                                       0             0                    0             0

Closing Cash and Cash Equivalents per IAS            30,533        39,512               30,533        39,512


(2) Goodwill
Goodwill of £284,000 arose on acquisition of
IQE (Europe) by EPIH on 27 March 1996.

Under UK GAAP, this has been written off
directly to reserves.     Under IAS, however,
goodwill arising on acquisition should be

recognized as an asset and amortized over its
useful life.    The following shows the
retained profit and total net assets as if
they had been prepared under IAS with
goodwill amortized over 5 years.


Profit/(Loss) after Taxes and Exceptionals            (574)           682                  683         1,809
Dividends                                               (0)           (0)                  (0)           (0)
Retained Profit/(Loss) per UK GAAP                    (574)           682                  683         1,809
Goodwill Amortization                                  (14)          (14)                 (57)          (57)

Retained Profit/(Loss) per IAS                        (588)           668                  626         1,752

Equity Shareholders' Funds per UK GAAP              137,611       117,596              137,611       117,596
Goodwill Capitalization at Cost                         284           284                  284           284
Accumulated Goodwill Amortization                     (270)         (213)                (270)         (213)

Equity Shareholders' Funds per IAS                  137,625       117,667              137,625       117,667




NOTES TO THE ACCOUNTS FOR 12  MONTHS TO DECEMBER 2001


1    BASIS OF PREPARATION

     The financial information is prepared under the historical cost convention
     and in accordance with applicable accounting standards, which have been 
     applied on a consistent basis during the period under review.   The 
     particular accounting policies adopted are described below  :

*    Turnover represents amounts invoiced exclusive of value added taxation.

*    Tangible fixed assets are stated at cost less accumulated depreciation.
     Cost comprises all costs that are directly attributable to bringing the 
     asset into working condition for its intended use, as defined by Financial 
     Reporting Standard Number 15.    Depreciation has been calculated so as to 
     write down the cost of assets to their residual values over the following 
     estimated useful economic lives.    No depreciation is provided on land or 
     assets in the course of construction.


Freehold buildings                                 25 years
Short leasehold improvements                       5/27 years
Plant and machinery                                5/7 years
Fixtures and fittings                              4/5 years
Motor vehicles                                     4 years

*    The financial information consolidates the financial statements of the
     Company and all of its subsidiaries.

     The acquisition of IQE (Europe) Limited (formerly known as Epitaxial 
     Products International Limited) and its subsidiary Epitaxial Products Inc 
     on 27 March 1996 by EPI Holdings Limited, a new company established for 
     that purpose, has been accounted for under acquisition accounting, whereby 
     these Companies became part of the Group on the date of acquisition.

     The acquisition of EPI Holdings Limited and IQE Inc (formerly Quantum
     Epitaxial Designs Inc) on 16 May 1999 by IQE plc, a new holding company
     established for that purpose, has been accounted for under merger 
     accounting, whereby the financial information is disclosed as if the 
     companies had always been part of the same Group.

     The acquisition of  Wafer Technology International Limited and its
     subsidiary Wafer Technology Limited on 22 November 2000 by IQE plc has been
     accounted for under acquisition accounting, whereby these companies became 
     part of the Group on the date of acquisition.

*    Stocks are stated at the lower of cost and net realizable value.

*    Research and development expenditure is fully written off when incurred
     except where contracts of sufficient value exist or are likely to exist in 
     the foreseeable future, in which case it is written off over a two year 
     period commencing with the start of the contracts to which the costs 
     relate. 

*    Transactions in foreign currencies during the period are recorded in
     sterling at the rates ruling at the dates of the transactions. Monetary      
     assets and liabilities in foreign currencies are translated into sterling 
     at the rates ruling at the balance sheet date.   All exchange differences 
     are taken to the profit and loss account.

     The balance sheets of IQE Inc (formerly Quantum Epitaxial Designs Inc) are
     translated into sterling at the closing rates of exchange for the period, 
     while the profit and loss accounts are translated into sterling at the 
     average rates of exchange for the period.   The resulting translation 
     differences are taken direct to reserves.

*    The Group operates a defined contribution pension scheme.   Contributions
     are charged in the profit and loss account as they become payable in 
     accordance with the rules of the scheme.

*    Deferred taxation is provided on timing differences, arising from the
     different treatment of items for accounting and taxation purposes, which 
     are expected to reverse in the future without replacement, calculated at 
     the rates at which it is expected that tax will arise.

*    Government grants receivable in connection with expenditure on tangible
     fixed assets are accounted for as deferred income, which is credited to the
     profit and loss account by instalments over the expected useful economic 
     life of the related assets on a basis consistent with the depreciation 
     policy.  Revenue grants for the reimbursement of costs incurred are 
     deducted from the costs to which they related, in the period in which the 
     costs are incurred.

*    Assets held under finance leases and hire purchase contracts are
     capitalized at their fair value on inception of the leases and depreciated 
     over the shorter of the period of the lease and the estimated useful 
     economic lives of the assets.   The finance charges are allocated over the 
     period of the lease in proportion to the capital amount outstanding and are 
     charged to the profit and loss account.  Operating lease rentals are 
     charged to the profit and loss account in equal amounts over the lease 
     term.

*    The only derivative instruments utilized by the Group are forward exchange
     contracts.  The Group does not enter into speculative derivative contracts.
     Forward exchange contracts are used for hedging purposes to alter the risk
     profile of an existing underlying exposure of the Group in line with the 
     Group's risk management policies.


2 GOODWILL

     On the acquisition of a business, fair values are attributed to the Group's
     share of the net tangible assets acquired.  Where the cost of the 
     acquisition exceeds the values attributable to such net assets, the
     difference is treated as purchased goodwill.  The goodwill arising on the
     acquisition of IQE (Europe) Limited (formerly Epitaxial Products 
     International Limited) and its subsidiary Epitaxial Products Inc by EPI 
     Holdings Limited was written off directly to reserves in the year of 
     acquisition. Goodwill of 284,000 remains eliminated in the profit and loss 
     reserve and will be charged to the profit and loss account on the 
     subsequent disposal of IQE (Europe) Limited and Epitaxial Products Inc.

     Following the issue of Financial Reporting Standard 10, goodwill arising in
     accounting periods ending on or after 23 December 1998 must be classified 
     as an asset on the balance sheet and amortized over its useful life.

     The goodwill arising on the acquisition of Wafer Technology International
     Limited and its subsidiary Wafer Technology Limited has been capitalized 
     and is being amortized over its useful life, which is considered by the 
     Directors to be 20 years.


3.   EXCEPTIONAL ITEMS
                                                2001                    2000
     Exceptional items comprise :

     Legal fees                                £759K                     £0K


     Legal fees relate to a complaint lodged by IQE (Europe) against Rockwell
     regarding a declaratory judgment that IQE Europe's processes did not 
     infringe a Rockwell-owned MOCVD patent which expired on 11 January 2000 
     plus claims for damages related to this matter.   There is a counter claim 
     by Rockwell alleging breaches of a licence agreement by IQE (Europe).    
     Two legal opinions obtained by IQE (Europe) in the US clearly support IQE's 
     view that its processes were not covered by Rockwell's patent, the validity 
     of which is separately being disputed by other companies in the US. It is 
     uncertain whether the matter will ultimately go to trial or what the the 
     outcome will be.


4   CONTINGENT LIABILITY

     A claim has been made against the Group alleging breaches of a licence
     agreement.  The Group is vigorously defending this action and at this stage 
     the outcome is uncertain.   Due to the uncertainty of the outcome it is not 
     possible to conclude as to whether a probable transfer of economic benefits 
     will be required to settle any obligation, nor can a reliable estimate be 
     made of the amount of such an obligation should such an obligation result 
     from the claim. Accordingly, under the provisions of FRS 13, no provision 
     has been made in the accounts for any potential future liability that may 
     arise from the claim.

     As discussed in note 3, the Group has expensed in the year legal fees
     totalling £759,000 in respect of defending this claim.   In the view of the
     Directors, the Group may incur further legal costs of up to £1,000,000 in 
     the year ended 31 December 2002 should this legal action continue.


5   EARNINGS PER SHARE

     FRS 14 requires the presentation of diluted EPS when a company could be
     called upon to issue shares that would decrease net profit or increase net 
     loss per share.  For a loss making company with outstanding share options, 
     net loss per share would only be increased by the exercise of the out of 
     the money options.   Since it seems inappropriate to assume that options 
     holders would act irrationally, no adjustment has been made to diluted EPS 
     for out of the money share options.


6   AUDITED RESULTS

     The financial information set out in the preliminary announcement does not
     constitute the Company's statutory accounts for the years ended 31 December 
     2000 and 31 December 2001. The financial information for the year ended 31 
     December 2000 has been derived from the statutory accounts for that year 
     which have been delivered to the Registrar of Companies.  The auditors 
     reported on those accounts ; their report was unqualified and did not 
     contain a statement under section 237(2) or section 237(3) of the Companies 
     Act 1985.  The statutory accounts for the year ended 31 December 2001 will 
     be finalized on the basis of the financial information presented by the 
     Directors in this preliminary announcement, and will be delivered to the 
     Registrar of Companies following the Company's annual general meeting.

     The accounts for the quarter ended 31 December 2001 have not been audited.


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