Interim Results

IQE PLC
22 August 2001



                                                         22 AUGUST 2001

                                   IQE plc

       2001 Interim and Q2 Results : Continued Record Sales and Profits


IQE plc, the leading global outsource supplier of customised epitaxial wafers
to the compound semiconductor industry, is pleased to announce its 2nd Quarter
and Interim Results for the half year ended 30 June 2001.



Highlights

Record second quarter sales at £13.158 m (Q2/2000: £6.857 m), nearly double Q2
/2000 and up 1.5% compared with Q1/2001.

Half year sales at £26.117 m (H1/2000: £13.208 m), up 97.7% compared with H1/
2000.

Second quarter operating profit before goodwill amortization and exceptional
items at £1.292 m (Q2/2000: £0.365 m), over three times higher than Q2/2000
and up 2.3% compared with Q1/2001.

Half year operating profit before goodwill amortization and exceptional items
at £2.557 m (H1/2000: £0.786 m), up 224.9% compared with H1/2000

Earnings per share pre goodwill of 0.66 pence for Q2 and 1.29 pence for H1
compared with 0.23 p and  0.40 p for the same periods in 2000

Broadly cash neutral for the half year before capital expenditure, with EBITDA
for the half year of  £5.115 m (H1/2000: £1.924 m), up 165.8% compared with H1
/2000.

Continued strong progress at IQE Silicon Compounds including the appointment
of a General Manager and 25 Non Disclosure Agreements signed with customers.

New product development progressing well, with significant new customer design
wins.

Recent signing of Heads of Agreement for a Joint Venture with QinetiQ
(formerly a major part of DERA - Defence Evaluation and Research Agency) for
advanced semiconductor materials R&D services.

Commenting on the results, Dr Drew Nelson, Executive Chairman, said....... '
Against the backdrop of very difficult market conditions as a result of excess
inventories within the wireless and opto-electronics industries, it is
pleasing to be able to report that IQE was able to again increase sales and
operating profit levels in the second quarter of 2001. The Group's position as
a recognised technological leader in the manufacture of compound semiconductor
wafers has resulted in the award of a number of development contracts, which
have so far largely offset the decline in production output.

We expect second half sales and profits will be strongly impacted by lower
opto-electronics sales offset by improving conditions in the wireless
marketplace, continued success in winning new product development contracts,
and continuing growth in the silicon compounds division despite adverse
conditions in the silicon marketplace'

For further information please contact:

Tim Thompson/Nicola Cronk, Buchanan Communications        [phone]


2001 INTERIM RESULTS

INTRODUCTION

The first half of 2001 has seen a high degree of turmoil in a number of key
markets in which the Group operates, with many of the major players in the
opto-electronics segment announcing sharply reduced sales and profitability as
well as headcount reductions. Additionally, the electronics sector has
remained relatively depressed throughout the period. However, despite these
difficulties, I am pleased to report that IQE has delivered record half year
sales and operating earnings  pre-goodwill and exceptionals.

RESULTS

Sales in Q2 reached their highest ever quarterly level of £13.158m, nearly
double the level achieved in the second quarter of the last year (Q2/2000: £
6.857m) and 1.5% higher than the previous quarter (Q1/2001: £12.959m). Sales
for the half year to June were 97.7% higher than last year at £26.117m (H1/
2000: £13.208m). The improvement in turnover resulted from bringing on line
new reactors installed in the second half of last year as well as a full six
months contribution from Wafer Technology and initial production sales from
IQE Silicon Compounds.

Gross margins in Q2 were slightly lower than the previous quarter at 31% (Q1/
2001: 33.9%) mainly due to capacity utilisation issues caused by the downturn
in the opto-electronics market and the continued softness of the wireless
market. In addition, the Group experienced lower margins at Wafer Technology
resulting from high gallium prices which peaked in the period, and at Silicon
Compounds which is currently engaged in a considerable number of production
contract qualification cycles with customers.

Research and development expenditure increased during Q2 to £0.757m (Q2/2000 :
£0.578m) representing 5.7% of sales, all of which was directly expensed during
the quarter with no additional expenditure carried forward. Total research and
development costs for the half year amounted to £1.296m (H1/2000: £1.123m),
which was equivalent to 5.0% of sales (H1/2000: 8.5%).   SG&A costs for the
quarter were at £2.027m (Q2/2000: £1.397m) and represented 15.4% of sales,
down from 20.4% in the same period last year.  SG&A costs for the half year
were £4.612m (H1/2000: £2.470m) and also continued to reduce as a percentage
of sales to 17.7% (H1/2000: 18.7%).

Operating profit before goodwill amortisation and exceptional items was a
record for the quarter at £1.292m, more than three times higher than the
corresponding period in 2000 (Q2/2000: £0.365m) and 2.3% up compared with the
previous quarter (Q1/2001: £1.264m). Cumulative operating profit before
goodwill amortization and exceptionals was £2.556m (H1/2000: £0.786m), 224.9%
higher than the first half of last year. This represents an operating margin
of 9.8% compared with 6.0% in the first half of last year.

Exceptional first half SG&A costs of £0.274m (H1/2000: £0.123m) related to
legal costs in the US offset by provision adjustments for future national
insurance charges against stock option awards. After crediting net interest
income for the first half of £0.418m (H1/2000: £0.125m) and charging
exceptional items and goodwill amortization relating to the Wafer Technology
acquisition of £0.910m (H1/2000: Nil), profit before tax was £1.790m (H1/2000:
£0.789m). Profit after tax was £1.202m (H1/2000: £0.552m).  Basic earnings per
share were 0.73 pence (H1/2000: 0.40 pence) and1.29 pence (H1/2000: 0.40
pence) excluding goodwill amortization.

The Group was broadly cash neutral for the six months excluding capital
expenditure. 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. Capital expenditure
remained on target in Q2 at £11.708m, bringing the total for the half year to
£22.833m (H1/2000: £8.251m) which was partly funded by HP leases totalling £
3.922m. The net cash outflow for the six months before financing was £19.674m
(H1/2000: £4.371m). Capital expenditure will fall sharply in the second half
as originally planned.

OPERATIONS

The III-V epiwafer operations performed well in the first half despite a
rapidly deteriorating opto-electronics market and continued softness in the
wireless market. The UK facility generated an exceptional performance, partly
due to focussing on advanced product areas such as VCSELs where demand has
remained relatively robust and partly as a result of winning significant
development work, which has helped to offset declining production volumes.
However, capacity utilisation has remained weak in the US, although there have
been some indications of an upturn in the wireless market due to customers
having depleted inventories of various components.   As a result, the Group's
book to bill ratio in Q2 fell below one to 0.94 (Q1/2001: 1.06).

Significant progress was made during the first half in the area of new product
development, in particular 980 and 1300 nm laser VCSEL structures, indium
phosphide HBTs and metamorphic structures for both HEMTs and HBTs. In March it
was announced that the Group had been selected by GTRAN, Inc. as supplier for
InP HBT epitaxial wafers for use in their next generation 40Gb/s SONET
products.   In addition, the Group is continuing with qualification programs
by a number of other players in this marketplace. Three MOVPE reactors have
now been installed in the Bethlehem US plant but the programme for run-up and
testing of these machines is being delayed due to the current state of the
market.

IQE Silicon Compounds made its first production sales in the half year and
investment in the new facility has been proceeding according to plan. Six
reactors have now been delivered and installed, two of which are fully
operational and the remainder have been run up and are progressing through
internal qualification.   Qualification wafers have been run for 9 customers
and, more recently, the first silicon germanium wafers have been produced and
are now in qualification. Customer interest in this new business remains
strong with the demand showing no signs of softness. The total number of
signed NDAs (Non Disclosure Agreements) has now reached 25, including
agreements with Dynex, ESM, Semifab, Soitec and Zarlink (Mitel).

Wafer Technology has also performed well, showing significantly increased
sales compared to last year.   However, margins in the second quarter were
adversely impacted by high gallium prices, which have subsequently begun to
decline. Synergies between the Group companies are being realised as customers
appreciate the attractiveness of IQE's broad based materials portfolio.  In
addition, the Group has significantly enhanced its profile in the industry by
consolidating its brand image and demonstrating a key presence at CS-MAX in
Boston in July, the world's first manufacturing exposition for the compound
semiconductor industry.

MANAGEMENT AND EMPLOYEES

I am pleased to report the appointment of Sandy Hutchon as General Manager of
IQE Silicon Compounds. Sandy has considerable experience of the silicon
industry, having previously worked for National Semiconductor, Siemens and
ESM.    We also welcome Nick Stork, who joined as Financial Controller of IQE
(Europe) from Christie-Tyler Ltd where he was Group Accountant.

During the half year the Group retained a firm of remuneration consultants to
review its Share Option Scheme and to propose new arrangements aimed at
aligning the interests of employees with those of the shareholders and
retaining key employees. Following their recommendations, the key principles
of the new plans were approved at the Company's Annual General Meeting in May
and the All Employee Share Ownership Plan ('AESOP') has now been launched to a
favourable response from employees.

TRADING PROSPECTS

A number of major opto-electronics companies have indicated that they are
experiencing a significant downturn in business as a result of excess
inventories which had been built up in the latter part of last year and early
this year.   As a consequence of this, customer requests for order
rescheduling, cancellation or delays have increased during the last few
months.  However, we have largely been able to compensate for this to date
thanks to the award of several substantial new product development contracts,
which I believe will lead to increased production quantities in the future as
customers design IQE wafers into their next generation products.

The wireless sector has remained soft, although there have been recent
indications of a recovery in the second half of the year as some customers
have begun to re-order production items, albeit at low levels. We expect order
levels in the wireless sector to start to pick up during Q3 and accelerate
through Q4.

The substrate business is currently stable as a result of good sales for
speciality products, although margins during Q3 will be adversely impacted by
the high price of gallium metal during the last few months.  Gallium prices
are now declining significantly so we expect margins to improve again in Q4.
We also expect revenues to continue to increase at Silicon Compounds as
qualification is completed and production contracts are awarded, particularly
towards the end of the year as qualification cycles can be several months
long. Customer feedback to date has been very positive.

As previously indicated in our Q1 announcement, visibility for the second half
of the year continues to be very limited.  The positive impact of improving
wireless orders, continued success in winning development contracts, and
increasing revenues at Silicon Compounds is unlikely to offset the strong
decline in production orders for opto-electronic components as excess
inventories in that sector are worked through.  Consequently, we expect a
significant sequential decline in revenues in Q3 followed by a sequential
increase in Q4, although the overall position is likely to show continued
substantial year on year growth compared with last year.   In this difficult
environment, management is focussing on tight control of overheads and
effective cash management, while ensuring that the Group remains in strong
shape to address the upturn as inventories are extinguished.

Notwithstanding current difficult market conditions, which we believe may well
accelerate the trend towards the outsourcing of compound semiconductor wafer
manufacture, we continue to be highly confident of our medium and long term
prospects.


Dr Drew Nelson OBE
Executive Chairman IQE plc


PROFIT AND LOSS ACCOUNT
6 MONTHS TO JUNE 2001

                         3 months  3 months  6 months  6 months    12 months to
                               to        to        to        to
                           30 Jun    30 Jun    30 Jun    30 Jun  note   31 Dec
                             2001      2000      2001       000            2000
(All figures GBP000s)   unaudited unaudited unaudited unaudited         audited

Turnover                   13,158     6,857    26,117    13,208          30,117
Cost of Sales             (9,082)   (4,517)  (17,653)   (8,829)        (19,785)

Gross Profit                4,076     2,341     8,464     4,380          10,332
Gross Profit %               31.0      34.1      32.4      33.2            34.3

S G and A Costs
      Research/             (757)     (578)   (1,296)   (1,123)         (1,870)
      Development
      Selling/General/
      Administration      (2,027)   (1,397)   (4,612)   (2,470)         (6,392)

Operating Profit/
(Loss) before Goodwill
/Exceptionals               1,292       365     2,556       786           2,070
Operating Profit/
(Loss) % before
Goodwill/Exceptionals         9.8       5.3       9.8       6.0             6.9
Goodwill Written off        (451)       (0)     (910)       (0)     2     (209)
Exceptional Items           (274)      (87)     (274)     (123)     3      (75)
Operating Profit/
(Loss) after Goodwill/
Exceptionals                  567       279     1,372       664           1,786
Operating Profit/
(Loss) % after
Goodwill/Exceptionals         4.3       4.1       5.3       5.0             5.9

Interest Received/            123       174       418       125           1,208
(Paid)

Net Profit/(Loss)
before Taxes                  690       453     1,790       789           2,994
Net Profit/(Loss) %           5.2       6.6       6.9       6.0             9.9

Current Taxes                 198     (133)     (321)     (237)              75
Deferred Taxes              (267)       (0)     (267)       (0)         (1,259)
Dividends                     (0)       (0)       (0)       (0)               0

Net Profit/(Loss)
after Taxes                  621       320     1,202       552           1,810

Basic Earnings Pence/
Share                        0.38      0.23      0.73      0.40            1.24
Basic Earnings Pence/
Share excl Goodwill          0.66      0.23      1.29      0.40            1.38
Diluted Earnings Pence
/Share                       0.37      0.22      0.71      0.38            1.18
Diluted Earnings Pence
/Share excl Goodwill         0.64      0.22      1.25      0.38            1.32

Net Profit/(Loss) before Interest
/Taxes/ Depreciation and
Amortization (EBITDA)       2,524       966     5,115     1,924           4,832


BALANCE SHEET
6 MONTHS TO JUNE 2001
                                            As At           As At         As At
                                      30 Jun 2001    30 Jun  2000 note  31 Dec
                                                                           2000
(All figures GBP000s)                   unaudited       unaudited       audited

Fixed Assets
               Intangible Fixed            35,550               0     4  36,543
               Assets
               Tangible Fixed              69,439          19,145        47,847
               Assets
               Total Fixed Assets         104,989          19,145        84,390

Current Assets
               Stocks                      12,881           3,718         7,885
               Debtors                     13,652           8,652        10,312
               Cash and Bank               19,706          47,359        39,512
               Total Current               46,239          59,728        57,709
               Assets

Creditors Falling Due within One         (21,358)         (8,295)       (17,406)
Year

Net Current Assets                         24,881          51,433        40,303

Total Assets less Current                 129,870          70,579       124,693
Liabilities

Creditors Falling Due after One
Year
               Deferred Income               (57)            (81)          (69)
               Deferred Tax               (1,857)           (331)       (1,590)
               Liability
               Long Term                  (8,228)         (3,925)       (5,438)
               Borrowings

Net Assets                                119,728          66,242       117,596


Capital and Reserves
               Called Up Share              1,641           1,498         1,633
               Capital
               Merger Reserve               (605)           (605)         (605)
               Share Premium              111,875          62,533       111,802
               Account
               Shares to be                   655               0           988
               Issued
               Retained Earnings            4,292           1,833         3,090
               Other Reserves               1,870             983           688

Total Equity Shareholders' Funds          119,728          66,242       117,596



The financial statements were approved by
the Directors of IQE plc on 21 August 2001


JL COVENTRY
Company Secretary


CASH FLOW STATEMENT
6 MONTHS TO JUNE 2001
                           3 months  3 months  6 months  6 months            12
                                 to        to        to        to        months
                                                                             to
                             30 Jun    30 Jun    30 Jun    30 Jun
                               2001      2000      2001      2000   31 Dec 2000

(All figures GBP000s)     unaudited unaudited unaudited unaudited       audited

Net Inflow/(Outflow) from
Operations                  (2,717)     3,914   (1,320)     3,783        10,949
Returns on Investment and
Servicing Finance
      Interest Received/        123       174       418       125         1,208
      (Paid)

Capital Expenditures
      Purchases of Fixed    (8,844)   (4,427)  (18,911)   (8,251)       (33,566)
      Assets
      Intangible Fixed          (0)         0     (250)         0       (13,968)
      Assets

Equity Dividends Paid             0         0         0         0             0

Taxes Refunded/(Paid)             0       (8)       390      (28)         (144)

Net Inflow/(Outflow)
before Financing           (11,439)     (347)  (19,674)   (4,371)       (35,521)

Financing
      Issues of Ordinary         28    43,749        81    43,764        67,356
      Share Capital
      Loans Received/         (106)        24     (213)     (151)         (441)
      (Repaid)

Net Inflow/(Outflow) from      (78)    43,773     (132)    43,613        66,915
Financing

Increase/(Decrease) in
Cash
and Bank Overdrafts        (11,517)    43,426  (19,806)    39,242        31,394


RECONCILIATION OF PROFIT TO CASH INFLOW FROM OPERATIONS

                                3 months  3 months  6 months  6 months       12
                                      to        to        to        to   months
                                                                             to
                                  30 Jun    30 Jun    30 Jun    30 Jun   31 Dec
                                    2001      2000      2001      2000     2000

(All figures GBP000s)          unaudited unaudited unaudited unaudited  audited

Operating Profit after               567       280     1,372       664    1,786
Goodwill/Exceptionals

Depreciation                       1,506       687     2,833     1,261    2,839
Goodwill                             451         0       910         0      209
(Gain)/Loss on Sale of Fixed
Assets                                 0         0         0         0       29
(Increase)/Decrease in Stocks    (2,598)     (660)   (4,996)   (1,145)  (4,013)
(Increase)/Decrease in Debtors     (762)       377   (3,340)     (910)  (1,157)
Increase/(Decrease) in           (1,875)     3,236     1,913     3,925   11,280
Creditors
Grants Released                      (6)       (6)      (12)      (12)     (24)
Grants Received                        0         0         0         0        0

Net Cash Inflow/(Outflow) from   (2,717)     3,914   (1,320)     3,783   10,949
Operations


RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS

                               3 months  3 months  6 months  6 months 12 months
                                     to        to        to        to        to
                                 30 Jun    30 Jun    30 Jun    30 Jun    31 Dec
                                   2001      2000      2001      2000      2000

(All figures GBP000s)         unaudited unaudited unaudited unaudited   audited

Increase/(Decrease) in Cash    (11,517)    43,426  (19,806)    39,242    31,394

Loans (Received)/Repaid           1,166      (24)       213       151       441

Change in Funds Resulting      (10,351)    43,402  (19,593)    39,393    31,835
from Cash Flows

New Finance Leases              (3,922)       (0)   (3,922)       (0)   (2,590)

Net Movement                   (14,273)    43,402  (23,515)    39,393    29,245
Net Funds at Start               23,481     (439)    32,813     3,571     3,571
Exchange Differences                 90         1         0         0       (3)

Net Funds at Close                9,298    42,964     9,298    42,964    32,813


Analysis of Net Funds
      Cash and Bank              19,706    47,359    19,706    47,359    39,512
      Debt Due after One Year   (3,395)   (3,850)   (3,395)   (3,850)   (3,527)
      Debt Due within One         (578)     (452)     (578)     (452)     (508)
      Year
      HP Creditors/Finance      (6,435)      (93)   (6,435)      (93)   (2,664)
      Leases

      Total                       9,298    42,964     9,298    42,964    32,813



NOTES TO THE ACCOUNTS

1       BASIS OF PREPARATION

         The financial statements are prepared in accordance with applicable
accounting standards under UK GAAP.  The particular accounting policies
adopted are described below  :

*        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.

*        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 as noted in 4 (below)

*        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 :

Provision for national insurance contributions on share         (£41K)    £123K
options
Legal fees                                                      £315K       £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
outcome will be.

4       INTANGIBLE FIXED ASSETS

         Development costs in respect of new products have been carried
forward where contracts of sufficient value exist or are likely to exist in
the foreseeable future, and will be written off over a two year period
commencing with the start of the contracts to which the costs relate.

5        CONTINGENT LIABILITY

         There is a contingent liability covering further legal costs in
respect of  the actions between IQE (Europe) and Rockwell (see note 3 above).
The Company estimates that legal fees of up to an additional £300K may be
incurred in the second half of the year.


Independent Review Report to IQE PLC

Introduction

We have been instructed by the Group to review the financial information for
the six months ended 30 June 2001 which comprises the profit and loss account,
balance sheet, cash flow statement and related notes. We have read the other
information contained in the interim report and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information.

Directors' responsibilities

The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors.  The directors
are responsible for preparing the interim report in accordance with the
Listing Rules of the Financial Services Authority which require that the
accounting policies and presentation applied to the interim figures should be
consistent with those applied in preparing the preceding annual accounts
except where any changes, and the reasons for them, are disclosed.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999
/4 issued by the Auditing Practices Board for use in the United Kingdom.  A
review consists principally of making enquiries of Group management and
applying analytical procedures to the financial information and underlying
financial data and based thereon, assessing whether the accounting policies
and presentation have been consistently applied unless otherwise disclosed.  A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions.  It is substantially less in scope than
an audit performed in accordance with United Kingdom Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly, we
do not express an audit opinion on the financial information.



Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2001.



Deloitte & Touche
Chartered Accountants
21 August 2001


RECONCILIATION OF UKGAAP TO IAS
                        3 months to  3 months  6 months  6 months    12 months
                                           to        to        to    months to
                        30 Jun 2001    30 Jun    30 Jun    30 Jun       31 Dec
                                         2000      2001      2000         2000

(All figures GBP000s)     unaudited unaudited unaudited unaudited      audited

(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   (2,715)    3,906     (929)     3,755       10,805
Operations
Cash Inflow/(Outflow) from   (7,663)   (4,253) (18,743)   (8,126)     (46,326)
Investing
Cash Inflow/(Outflow) from   (1,137)   43,773     (132)    43,613       66,915
Financing

Net Increase/(Decrease) in Cash
and Cash Equivalents        (11,516)   43,426  (19,805)    39,242       31,394

Opening Cash and Cash
Equivalents per IAS          31,223     3,932    39,512     8,117        8,117
Exchange Difference               0         0         0         0            0

Closing Cash and Cash        19,707    47,358    19,707    47,359       39,511
Equivalents per IAS


(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                     (261)      321       320       552        1,810
Exceptionals
Dividends                         0         0         0         0            0
Retained Profit/(Loss) 
per UK GAAP                    (261)      321       320       552        1,810
Goodwill Amortization           (14)      (14)      (28)      (28)         (57)
Retained Profit/(Loss) per IAS (276)      306       291       523        1,753

Equity Shareholders'
Funds per UK GAAP           119,728    66,242   119,728    66,242      117,596
Goodwill Capitalization 
at Cost                         284       284       284       284          284
Accumulated Goodwill           (241)     (185)     (241)     (185)        (213)
Amortization

Equity Shareholders' 
Funds per IAS               119,770    66,341   119,770    66,341      117,667