Issue of Equity

IQE PLC
07 October 2003


                        IQE plc ('IQE' or the 'Company')
                                        
                                        
                    Issue of 125,000,000 New Ordinary Shares
                                        
                        at 15 pence per New Ordinary Share


Summary


The Board of IQE, the leading global outsource supplier of customised epitaxial
wafers to the semiconductor industry, today announced proposals to raise £18.75
million (before expenses) by means of a placing of 125,000,000 new Ordinary
Shares ('New Ordinary Shares') at a price of 15p per share.


99,804,848 of the New Ordinary Shares have been placed firm, primarily with
institutional investors and the balance of 25,195,152 New Ordinary Shares has
been placed subject to clawback under the Open Offer whereby Qualifying
Shareholders are invited to apply for New Ordinary Shares on the basis of 2 New
Ordinary Shares for every 15 Ordinary Shares held.


Of the 25,195,152 New Ordinary Shares which are subject to clawback under the
Open Offer, 6,572,202 New Ordinary Shares, representing 86.1 per cent. of the
Directors' total aggregate entitlement under the Open Offer and which they have
irrevocably undertaken not to take up, have been placed firm with institutions,
making a total firm placing mainly with institutions of 106,377,050 New Ordinary
Shares.


The Placing and Open Offer has been fully underwritten by Evolution Beeson
Gregory Limited ('Evolution Beeson Gregory').


The Board believes that the recent improvements in the semiconductor industry
are likely to lead to increased demand for the Group's products. The purpose of
the Placing and Open Offer is to provide the Group with additional working
capital resources to respond to the anticipated upturn in demand for its
products.


The net proceeds of the Placing and Open Offer will strengthen the Company's
balance sheet, thereby giving increased confidence to customers that it has the
appropriate financial resources to enter into significant long term contracts.
This is considered by the Board to be strategically important as the
semiconductor sector recovers, particularly as the Directors believe that the
Group's model of outsourced manufacture should be well-placed to be a
beneficiary of the recovery. In particular, the net proceeds of the Placing and
Open Offer should allow the Company to negotiate from a position of increased
strength and security in relation to exploiting its position with strained
silicon, which the Board expects to be a major area for development and growth
in the semiconductor industry. Finally, the Company intends to accelerate the
strengthening of its sales capability in the Far East.


Because of its size, the Placing and Open Offer is conditional, inter alia, upon
the approval of shareholders, which is to be sought at an Extraordinary General
Meeting to be held on 3 November 2003.


Background to and reasons for the Placing and Open Offer


The Group is a leading global outsource manufacturer of bespoke wafer products
and services to the semiconductor device manufacturing industry. The Group
operates four separate and independent subsidiary businesses:


• IQE Inc, which supplies wafer products to the wireless sector, is a
qualified supplier to several of the world's top RF component companies. In the
first half of 2003, IQE Inc had turnover of approximately £5,502,000 and, in
view of increasing customer demand, the Directors expect it to become cashflow
positive next year;


• IQE Europe supplies products into the optoelectronics market. In the
first half of 2003, Europe had turnover of approximately £2,023,000 and the
Directors believe that Europe, now having lower operating costs whilst
possessing significant production capacity, should benefit significantly from a
number of new product developments which are expected to become qualified with
major customers over the next 12 months;


• IQE Silicon Compounds develops products specifically for the silicon
market and the Directors believe it has established a leading position in the
area of strained silicon, with samples now shipping and in qualification with
several potential key customers. In the first half of 2003, IQE Silicon
Compounds had turnover of approximately £274,000. The Directors expect strained
silicon to form an increasingly significant part of the Group's business and the
Directors believe that IQE Silicon Compounds' position in strained silicon is
being validated through a number of leading industry players currently
evaluating formal, long term agreements with the Group as a means of securing
their own position in this technology; and


• Wafer Technology supplies substrates to the compound semiconductor
industry. In the first half of 2003 it had revenues of approximately £2,258,000
and, due to sustained demand for its range of Gallium Arsenide and Indium
Phosphide materials, is now trading at close to cash breakeven.


The semiconductor industry has been severely depressed during the last two
years, with the compound semiconductor segment of the industry experiencing its
first ever downturn. The Group's focus during those two years has therefore had
to adapt from trading through a time of exceptionally high growth to dealing
with the difficulties of a severely depressed marketplace. Whilst there still
remains a certain lack of visibility in the sector as a whole, the last few
months have seen a marked increase in interest in a number of products and key
technologies provided by the Group, together with a steady flow of more positive
news from the sector.


The wireless business has witnessed increasing demand for products albeit at the
expense of reduced average selling prices. Encouragingly, the Group has been
able to offset the impact of this to a large extent through a combination of
greater production efficiencies, lower operating costs and reduced raw materials
prices. The optoelectronics business has also seen some signs of recovery with
an increasing number of new products in qualification with major customers. The
substrate business remains stable, whilst interest in strained silicon, in which
IQE Silicon Compounds has significant expertise, continues to step up with the
product featuring as a key material on the 2002/3 International Technology
Roadmap for Semiconductors.


IQE Silicon Compounds has established a leading position in strained silicon
technology both in collaboration and separately by developing its own
stand-alone, proprietary process. IQE Silicon Compounds' own process for
producing strained silicon was showcased at Semicon West in San Francisco in
July 2003 and generated significant interest amongst potential customers.
Samples are being shipped and are in qualification with a number of potential
customers and the Directors believe the Group to be the first commercial
epi-source for this material worldwide.


The Group is experiencing an increased level of interest for its existing
products and those in qualification, especially in the Far East. As a result,
the Directors believe the time is now right to accelerate the growth of its
sales and marketing operations in that region to exploit this opportunity. The
Group anticipates increasing its sales force through the recruitment of
additional direct sales support staff to assist and bolster the existing sales
agents during the coming months.


In anticipation of the market for the Group's products improving, the net
proceeds from the Placing and Open Offer will enable the Company:


• to retain its infrastructure and intellectual property created and to
strengthen the Group's balance sheet, providing increased confidence to
customers who are proposing to enter into significant long term contracts;


• to exploit fully its available options in negotiating agreements for
the commercialisation of its position in strained silicon;


• to accelerate the growth of the Group's sales force, particularly in
the Far East; and


• to bolster the Group's working capital resources to ensure that it is
well positioned to capitalise quickly on the anticipated increase in demand for
its products.


The net proceeds of the Placing and Open Offer are not anticipated to be used
for material research activities or for major capital expenditure.


Strategy


The Group's goal is to maintain and further strengthen its position as a leading
global outsource supplier of bespoke wafer products and services to the
semiconductor device manufacturing industry.


The Group's strategy is to increase its market share through penetrating
in-house services by offering cost effective materials expertise and access to
new and established technologies across a range of production platforms. As
demand for end user products recovers, the Directors firmly believe that the
trend towards outsourcing will increase further, particularly as some of the
more mature products become commoditised and access to replacement technologies
becomes critical.


Since there are considerable barriers to entry, both in terms of production
know-how and capital investment, which is also encouraging in-house producers to
look externally, the Directors believe a shift to outsourcing is gathering
momentum in the industry which they believe should significantly benefit the
Group in the future.


Interim results, current trading and prospects


The Company announced its unaudited interim results for the six months ended 30
June 2003 on 20 August 2003. The Group reported sales of £10.0 million and a
loss before taxation of £6.8 million for the six month period. The Group's cost
base has been greatly reduced over the period with the second quarter of the
year producing a loss before tax of £3.0 million on sales of £5.1 million. Cash
at the period end stood at £10.7 million. In the second half of the current
financial year, the Group anticipates reporting broadly flat sales on the first
half. However, with an increasing number of qualifications across IQE's product
ranges due to complete later this year, the Directors expect tangible signs of
trading improvement to become visible from the beginning of the next financial
year onward.


Details of the Placing and Open Offer


IQE proposes to raise approximately £17.9 million, net of expenses, by way of a
Placing of 125,000,000 New Ordinary Shares at 15 pence per New Ordinary Share
(the 'Issue Price'). The Issue Price represents a discount of 7.7 per cent. to
the closing mid-market price per Ordinary Share of 16.25 pence, being the price
immediately prior to the date of this announcement. 25,195,152 of the New
Ordinary Shares placed are being made available for subscription by Qualifying
Shareholders who are being invited by Evolution Beeson Gregory to apply for New
Ordinary Shares under the Open Offer on the basis of 2 New Ordinary Shares for
every 15 Ordinary Shares held by them on the record date for the Open Offer (3
October 2003), and so in proportion to the number of Ordinary Shares then held.
The New Ordinary Shares will, when issued and fully paid, rank pari passu in all
respects with the existing Ordinary Shares including the right to all dividends
and other distributions declared, made or paid following admission of the New
Ordinary Shares to trading on AIM.


Evolution Beeson Gregory has agreed, as agent for IQE, to procure subscribers
for the New Ordinary Shares to be issued under the Placing. To the extent that
it fails to procure subscribers and/or to the extent that the New Ordinary
Shares offered under the Open Offer are not taken up by Qualifying Shareholders,
Evolution Beeson Gregory has agreed to subscribe as principal at the Issue Price
for the New Ordinary Shares which are to be issued in connection with the
Placing and the Open Offer.


Application has been made to the London Stock Exchange for the New Ordinary
Shares to be admitted to trading on AIM, which it is expected will become
effective on 5 November 2003.


Commenting on the Placing and Open Offer, Dr Drew Nelson, President and Chief
Executive Officer, said:


'I am delighted with the outcome of this fund raising. It both leaves us well
placed for the business opportunities that we see ahead and validates the
efforts that we have made to position the company over the difficult last two
years.'


For further information please contact:

IQE plc:                                        [phone]
Dr Drew Nelson
Stuart Hall
Chris Meadows

Buchanan Communications:                        [phone]
Tim Thompson/Nicola Cronk


7 October 2003






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