Preliminary Results

IQE PLC
28 March 2007


28 March 2007

IQE plc

Revenues and gross profits jump as global wireless position strengthened

IQE plc (AIM: IQE, 'the Group'), the leading global supplier of advanced wafer
products and wafer services to the semiconductor industry, has announced its
Preliminary Results for the year ended 31 December 2006.

FINANCIAL HIGHLIGHTS

•    Revenues up 55.2% at £32.4m (2005: £20.9m)

•    Gross profit up £3.3m at £2.5m (2005: loss £0.8m)

•    EBITDA loss down 45.6% at £2.4m (2005: loss £4.5m)

•    Operating loss down 30.2% at £4.2m (2005: loss £6.1m)

•    Net cash outflow from operating activities £4.6m (2005: outflow £5.1m)

•    Closing year end cash £4.1m (2005: £6.2m)

The results for 2005 have been restated for the adoption of FRS 20 where
applicable.  The financial highlights presented above exclude an exceptional
gain in 2006 of £0.3m (2005: gain £1.7m).

OPERATIONAL HIGHLIGHTS

•    Two major acquisitions completed

•    IQE established as the leading supplier of wafers to the global wireless 
     communications industry, offering a complete range of products for
     wireless communication devices

•    Wafer volumes up 67.8% at 250,000 units (2005: 149,000 units)

•    Excellent prospects for further significant increases in revenues in 2007


Dr Drew Nelson, IQE Chief Executive, commenting on the results said:

'2006 has been an exciting year for IQE with the completion of two key strategic
acquisitions that significantly increase our global presence and product
offering to the wireless communications industry.

'Following the acquisitions, wireless communications products now account for
over 75% of our revenues and the Group is now the largest independent wafer
supplier to the global wireless market. Our products are key to both current and
future generations of wireless communications devices including mobile phones,
PDAs, GPS, Wifi, WiMAX and laptop PC components.

'The mobile handset market continues to be the primary consumer of IQE's
products with the handset upgrades being the fastest growing part of the sector.
These tend to be higher speed, feature-rich, high-end products that use more
GaAs materials for the added performance and functionality.

'During the year we achieved a significant increase in revenues, bringing the
Group closer to achieving sustainable profitability in 2007. We believe the
continuing growth in the end markets for our products, coupled with our
strategic positioning in the wireless sector, place the Group in a good position
to continue to grow strongly.'

Contacts:

IQE plc :
Drew Nelson, President & Chief Executive Officer            [phone]
Phillip Rasmussen, Chief Finance Officer
Chris Meadows, Investor Relations Executive

Noble                                                       [phone]
John Llewellyn-Lloyd

College Hill :
Adrian Duffield/Ben Way                                     [phone]



NOTE TO EDITORS

IQE is the leading global supplier of advanced semiconductor wafers, with
products that cover the whole spectrum of wafer structures, supported by an
innovative outsourced foundry services portfolio that allows the Group to
provide a 'one stop shop' for the wafer needs of the world's leading
semiconductor manufacturers.

IQE uses advanced crystal growth technology (epitaxy) to manufacture and supply
bespoke semiconductor wafers ('epi-wafers') to the major chip manufacturing
companies, who then use these wafers to make the chips which form the key
components of virtually all high technology systems. IQE is unique in being able
to supply wafers using all of the leading crystal growth technology platforms.

IQE's products are found in many leading-edge consumer, communication, computing
and industrial applications, including a complete range of wafer products for
the wireless industry, such as mobile handsets and wireless infrastructure,
WiFi, WiMAX, base stations, GPS, and satellite communications; optical
communications, optical storage (CD, DVD), laser optical mouse, laser printers &
photocopiers, thermal imagers, leading-edge medical products, barcode, high
efficiency LEDs and a variety of advanced silicon based systems.

The manufacturers of these chips are increasingly seeking to outsource wafer
production to specialist foundries such as IQE in order to reduce overall wafer
costs and accelerate time to market.

IQE also provides bespoke R&D services to deliver customised materials for
specific applications and offers specialist technical staff to manufacture to
specification either at its own facilities or on the customer's own sites. The
Group is also able to leverage its global purchasing volumes to reduce the cost
of raw materials. In this way IQE's outsourced services, provide compelling
benefits in terms of flexibility and predictability of cost, thereby
significantly reducing operating risk.

IQE employs around 320 people and operates six manufacturing facilities located
in Cardiff (two) and Milton Keynes in the UK; in Bethlehem, Pennsylvania and
Somerset, New Jersey in the USA; and Singapore. The Group also has nine sales
offices located in major economic centres worldwide.

PRELIMINARY RESULTS 2006

1. OVERVIEW

IQE has firmly established itself as the leading supplier of advanced wafer
products and wafer foundry services to the worldwide semiconductor industry.
The Group has a global presence comprising six manufacturing sites worldwide and
sales locations in all the major economic regions of the world.

Customers include many of the world's largest chip manufacturers who use IQE's
wafers to produce advanced chips and integrated circuits for a diverse range of
current and next generation technology applications including all forms of
wireless and satellite communication systems, (including mobile phones, PDAs,
GPS, Wifi, WiMAX, laptops and networks), optical communications, optical storage
(DVD, CD), industrial, office and medical lasers, imaging systems and solar
power generation.

2. STRATEGY

IQE has continued to strengthen its leading position within the rapidly growing
wireless communication sector by the acquisition of two companies during the
latter part of 2006.  IQE RF in the USA was acquired on 19 August 2006 and MBE
Technology in Singapore was acquired on 29 December 2006.

The acquisitions in USA and Singapore enhance the Group's strategic positioning
in the wireless communications sector, delivering a number of strategic
advantages.  These include:

•          providing customers with a complete range of wireless products for
both current and future generations of high speed mobile internet and wireless
communications systems;

•          providing customers with multi site capabilities in the primary
manufacturing platforms (MBE and MOCVD);

•          broadening the Group's customer base, and providing greater access to
the Far East markets;

•          delivering benefits from economies of scale including purchasing
power and research and development efficiencies;

•          promoting the sharing of best practices and innovation to deliver
improved operating and cost efficiencies; and

•          providing capacity to meet the expected growth in demand in the
wireless communications sector.

The Group also continues to make progress in the electronics and opto-electronic
markets by developing and nurturing strategic partnerships with the key players
in these markets.

3. RESULTS

The results include IQE RF LLC which was acquired in August 2006.  MBE
Technology Pte Ltd was acquired on 29 December 2006 and its trading will be
consolidated from the beginning of 2007

Revenues were £32.4m (2005: £20.9m) including sales from IQE RF of £5.5m (2005:
£nil) representing a year on year increase of 55.2%. The average exchange rate
for 2006 was unchanged at USD 1.82/GBP (2005: USD 1.82/GBP).

The Group achieved a gross profit of £2.5m (2005: gross loss £0.8m before
exceptional gain of £1.7m). The improvement in gross margin was driven by
increased revenues and improved efficiencies together with gross margin of £1.2m
(2005: £nil) generated by IQE RF since its acquisition. The exceptional gain in
2005 of £1.7m related to the write back of a trade accrual which the Directors
no longer considered was required.

The Group invested £0.6m (2005: £0.5m) in research and development which was
expensed during the year and primarily reflects cross-qualification of products
and processes between existing and acquired businesses.

SG and A costs, comprising distribution and other administrative expenses, were
£5.9m (2005: £4.8m) before an exceptional gain of £0.3m (2005: £nil) including
SG and A costs at IQE RF of £0.3m (2005: £nil).  In total, SG and A costs
represented 18.3% of sales (2005: 23.0%).

Goodwill amortisation of £0.2m (2005: £nil) related to IQE RF.  The goodwill of
£5.9m (2005: £nil) resulting from the acquisition of MBE Technology will be
amortised from the beginning of 2007.

The EBITDA loss was down 45.6% to £2.4m (2005: EBITDA loss £4.5m) before
exceptional gains. Pre-tax loss was £4.2m, (2005: loss £4.3m) equivalent to a
loss per share of 1.21 pence (2005: loss 1.36 pence).

Cash management continues to be a priority for the Group.  Working capital,
excluding that acquired in IQE RF and MBE Technology, increased during the year
by £2.9m (2005: increase £0.8m) and the increase was primarily driven by the
increase in revenues. The operating cash outflow was £4.6m (2005: outflow
£5.1m).

Capital expenditure of £1.4m (2005: £0.9m) included the purchase of an
additional reactor at IQE Inc which cost £0.8m (2005: £nil) and was part of a
large outsource contract previously agreed.

The Group acquired IQE RF and MBE Technology during the year.  The total
purchase price of the two companies was £16.7m (2005: £nil) including cash
acquired in MBE Technology of £1.0m (2005: £nil).  The Group made two share
issues to provide funds for the two acquisitions and these, together with other
minor share issues, raised £15.9m (2005: £0.1m) net of costs.

Part of the purchase price of the companies included deferred payments of £5.5m
(2005: £nil) which fall due to be repaid by January 2009. Loan and lease
repayments during the year totalled £1.8m (2005: £0.9m), resulting in a net
increase in total borrowings at the year end to £10.0m (2005: £5.4m).  Gross
cash on hand exiting 2006 was £4.1m (2005: £6.2m) and net debt was £5.9m (2005:
net funds £0.9m). The Group also has access to overdraft facilities from its UK
and Singapore bankers of £3.0m for working capital purposes

4. MARKETS AND OPERATIONS

Wireless communications

IQE manufactures leading-edge, high efficiency and low power consumption wafers
for Radio Frequency (RF) components used in a wide range of wireless
communications devices and systems including mobile handsets, PDAs, WiFi, WiMAX,
base stations, satellite communications and personal computers.

IQE's wireless communications products comprise high frequency switch components
(pHEMTs), power amplifiers (HBTs) and advanced integrated components (BiFETs)
for next generation devices. All of these key components can be manufactured at
multiple sites using a choice of Molecular Beam Epitaxy (MBE) or Metal Organic
Chemical Vapour Deposition (MOCVD) tools.

The mobile handset market is the key driver for IQE's wireless business which
makes up over 75% of the Group's revenues. A recent industry study has found
that the upgrade mobile phone market is expected to significantly outstrip the '
first-time' handset market during 2007. The study also highlighted that the
upgrade market was most likely to be dominated by the high speed, feature-rich,
high-end mobile phones that use a higher proportion of GaAs products for
increased performance and functionality.

The multi-site production strategy, where identical wafers can be produced on at
least two different locations, offers customers the key benefits of higher
product yield (less product variation), higher capacity, lower costs and
disaster scenario mitigation.

Since the acquisition of the facilities in USA and Singapore, there has been a
significant degree of reallocation and qualification of production facilities to
optimise equipment utilisation and to release resources and capacity. This has
enabled the Group to focus on new products such as BiFETs (integrated switch/
power amplifier) where IQE has a significant technological lead.  This is a
relatively new product offering that is creating very strong interest with
volumes ramping up rapidly due to the significant increases in functionality
that the BiFET brings to the HBT power amplifier, especially for high speed
communication systems by integrating additional control components into a single
device.

All of the wireless businesses are performing well and, as volumes ramp up
through 2007, spare capacity throughout the Group will be increasingly utilised.

Optoelectronics

IQE manufactures advanced materials with electronic and optical properties
ranging from infra-red, through the visible range and into ultra-violet. These
materials are used in a wide range of components from lighting and displays to
audio, video and data storage as well as office, industrial and automotive
applications and high efficiency solar cells.

IQE's optoelectronic materials, which account for approximately 20% of the
Group's revenues, provide the enabling technology for a wide range of
applications including optical 'laser' mouse devices, laser printing and copying
machines, CD, DVD and HD-DVD readers and writers, and optical-fibre
communications systems. Optoelectronic materials can be manufactured at multiple
sites across a choice of production platforms.

Increasing demand for high-efficiency solar cells provide great opportunities
for optical and photovoltaic materials over the coming years. Currently, the
Group is making very good progress in developing high efficiency terrestrial
solar cell materials, and is expecting to be in limited pilot production by the
end of 2007.

Electronics

IQE manufactures enhanced properties for silicon based components to improve
product efficiencies and increase operating frequencies whilst maintaining low
power consumptions for existing silicon based chip technologies.

IQE offers silicon-based epitaxial services to wafer fabrication plants
worldwide, which account for approximately 5% of the Group's revenues.  It has
won a number of key outsourcing contracts to provide its core products and
epi-wafer services and has established a strong position in strained silicon,
which it is further developing as a strained silicon on insulator product (sSOI)
which is likely to be a key offering for next generation silicon based
electronic devices.

The significance of this is that increased customer demand for higher
performance electronic devices is prompting chip manufacturers to turn to
materials solutions to push the limits of standard silicon and epitaxy based
processes are the  key to enhancing the performance of silicon. The business
unit is rapidly filling capacity, and focussing on adding the higher value
products as the production demand for these continues to increase.

Substrates

IQE also manufactures high-end substrate materials for advanced applications
such as infra-red detectors and thermal imaging devices. Some of the substrates
are used by other parts of the Group, particularly for optoelectronic products,
but the majority of its substrate output is for external customers.

5. CURRENT TRADING OUTLOOK

Two major acquisitions and strong market conditions have helped secure IQE's
position as the leading global player in advanced wafer outsourcing. The primary
growth driver remains the rapidly increasing demand for wireless mobile
communications components around the world and the increasingly diverse use of
wireless technologies to satisfy the insatiable demand for higher speed mobile
communication systems.

IQE's strategy has been to develop and acquire a complete range of technologies
and products for this sector and to ensure that customers have cost effective
access to capacity, technology, and dual site manufacturing to help grow their
own businesses.

A recent industry study highlighting the rapid growth in demand for high-end
mobile handsets that use more GaAs materials for the added performance and
functionality endorses the Board's strategy to focus on the wireless sector.

Also announced today was IQE's success in securing new R&D contracts worth
around $2.4m to add to the current contracts worth over $2.5m, ensuring the
Group stays at the forefront of advanced wafer supply.

In common with the rest of the wireless industry, trading for the first two
months of 2007 has remained flat but orders and production upgrades have picked
up strongly during the last few weeks.  The market conditions for IQE's product
offerings, coupled with the Group's strong position in the marketplace, provide
a solid foundation for future growth.  The Board remains confident about IQE's
prospects.


IQE PLC

PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2006

CONSOLIDATED PROFIT AND LOSS ACCOUNT                                                       Restated            Restated
                                                                                 6 months  6 months 12 months 12 months
                                                                                       to        to        to        to
                                                                                   31 Dec    31 Dec    31 Dec    31 Dec
                                                                                     2006      2005      2006      2005
                                                                                              Note3               Note3
(All figures GBP000s)                                                      Note Unaudited Unaudited Unaudited Unaudited

Turnover from Continuing Operations                                                12,356    11,225    26,948    20,890
Turnover from Acquisitions                                                          5,474         0     5,474         0
Turnover                                                                           17,830    11,225    32,421    20,890
Cost of Sales (Including Exceptional Gain)                                  2/3  (16,657)   (9,682)  (29,936)  (19,905)
Gross Profit                                                                        1,173     1,543     2,485       985

Gross Profit/(Loss) before Exceptional Gain                                         1,173     (194)     2,485     (752)
Exceptional Gain                                                              2         0     1,737         0     1,737
Gross Profit                                                                        1,173     1,543     2,485       985
Gross Profit % before Exceptional Gain                                                6.6     (1.7)       7.7     (3.6)

Operating Expenses :
   Distribution Expenses                                                            (818)     (668)   (1,518)   (1,538)
   Administrative Expenses (Including Exceptional Gain)                           (2,880)   (2,094)   (4,944)   (3,774)
Operating Loss from Continuing Operations                                         (3,076)   (1,219)   (4,526)   (4,327)
Operating Profit from Acquisitions                                                    550         0       550         0

Operating Loss before Exceptional Gain                                            (2,526)   (2,956)   (4,231)   (6,064)
Exceptional Gain                                                              2         0     1,737       255     1,737
Operating Loss                                                                    (2,526)   (1,219)   (3,976)   (4,327)
Operating Loss % before Exceptional Gain                                           (14.2)    (26.3)    (13.1)    (29.0)

Interest (Paid)/Received                                                            (144)      (21)     (264)        35

Retained Loss for the Period                                                      (2,670)   (1,240)   (4,241)   (4,292)

Basic Loss Pence per Share                                                    4    (0.69)    (0.39)    (1.21)    (1.36)
Diluted Loss Pence per Share                                                  4    (0.69)    (0.39)    (1.21)    (1.36)

Administrative Expenses comprise :
   Research/Development                                                             (511)     (285)     (616)     (500)
   Goodwill Amortisation and Impairment                                             (166)         0     (166)         0
   Other Administrative Expenses (Including Exceptional Items)              2/3   (2,204)   (1,809)   (4,162)   (3,274)
Administrative Expenses                                                           (2,880)   (2,094)   (4,944)   (3,774)

Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA)
has been calculated as follows :
   Loss for the Period                                                            (2,670)   (1,240)   (4,241)   (4,292)
   Interest Paid/(Received)                                                           144        21       264      (35)
   Depreciation of Fixed Assets                                                       935       492     1,617     1,559
   Reversal of Impairment of Fixed Assets                                               0   (1,737)         0   (1,737)
   Goodwill Amortisation                                                              166         0       166         0
EBITDA                                                                            (1,425)   (2,463)   (2,194)   (4,505)



The comparative figures for 2005 have been restated for the adoption of FRS20
'Share Based Payment' see Note 3


IQE PLC

PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2006

          CONSOLIDATED STATEMENT OF TOTAL
          RECOGNISED GAINS AND LOSSES AND                      
          RECONCILIATION OF MOVEMENT IN          6 months to      Restated                             Restated
          SHAREHOLDERS' FUNDS                    31 Dec 2006   6 months to     12 months to     12 months to 31         
                                                               31 Dec 2005      31 Dec 2006            Dec 2005
                                                                     Note3                                Note3
          (All figures GBP000s)                    Unaudited     Unaudited        Unaudited           Unaudited

CONSOLIDATED STATEMENT OF TOTAL RECOGNISED
GAINS AND LOSSES

          Loss for the Period                        (2,670)       (1,240)          (4,241)               (4,292)
          Currency Translation Differences on          
          Foreign Currency Net Investments             (603)           214            (916)                   348

          Total Recognised Losses Relating to        
          the Period                                 (3,272)       (1,026)          (5,157)               (3,944)


RECONCILIATION OF MOVEMENT IN GROUP
SHAREHOLDERS' FUNDS

          Brought Forward Balance                     10,660        13,136           12,322                15,891

          Share Option Costs Credited to                 
          Reserves                                       330           168              501                   309
          Shares Issued net of Issue Costs            15,868            44           15,920                    66
          Foreign Exchange Translation                 
          Differences                                  (604)           214            (917)                   347
          Loss Attributable to Members of the       
          Group                                      (2,670)       (1,240)          (4,241)               (4,292)

          Closing Balance                             23,585        12,322           23,585                12,322

The comparative figures for 2005 have been restated for the adoption of FRS20
'Share Based Payment' see Note 3


IQE PLC

PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2006

                                                                                          Restated
                                                                        As At                As At
CONSOLIDATED BALANCE SHEET                                        31 Dec 2006          31 Dec 2005
                                                                                             Note3
(All figures GBP000s)                                               Unaudited            Unaudited

Fixed Assets :
      Intangible Fixed Assets                                          10,903                    0
      Tangible Fixed Assets                                            11,861                8,816
          Fixed Assets                                                 22,765                8,816

Current Assets :
      Stocks                                                            8,580                4,312
      Debtors                                                           6,480                3,404
      Cash at Bank and in Hand                                          4,071                6,245
      Total Current Assets                                             19,131               13,961

Creditors - Amounts Falling Due within One Year                      (10,916)              (6,355)
Net Current Assets                                                      8,215                7,606

Total Assets less Current Liabilities                                  30,979               16,422

Creditors - Amounts Falling Due after More than One Year :
      Deferred Income                                                   (160)                (199)
      Long Term Borrowings                                            (7,234)              (3,646)
      Total Creditors - Amounts Falling Due after More than           (7,394)              (3,845)
      One Year

Provision for Liabilities and Charges                                       0                (255)

Net Assets                                                             23,585               12,322

Capital and Reserves :
      Called-up Share Capital                                           4,299                3,163
      Share Premium                                                   172,031              157,263
      Shares to be Issued                                                 223                  209
      Investment in Own Shares                                           (12)                 (13)
      Merger Reserve                                                    (605)                (605)
      Profit and Loss Account                                       (151,835)            (147,593)
      Exchange Rate Reserve                                           (1,375)                (460)
      Other Reserves                                                      859                  358

Total Equity Shareholders' Funds                                       23,585               12,322

The comparative figures for 2005 have been restated for the adoption of FRS20
'Share Based Payment' see Note 3

Approved by the Directors of IQE plc on 27 March 2007


IQE PLC

PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2006

                                                                                        Restated            Restated
                                                                              6 months  6 months  12 months 12 months
                                                                                    to        to        to        to
CONSOLIDATED CASH FLOW STATEMENT                                                31 Dec    31 Dec    31 Dec    31 Dec
                                                                                  2006      2005      2006      2005
                                                                                           Note3               Note3
(All figures GBP000s)                                                        Unaudited Unaudited Unaudited Unaudited

Net Cash Outflow from Operating Activities                                      (1,206)   (1,945)   (4,640)   (5,062)

Returns on Investment and Servicing of Finance :
                                                 Interest (Paid)/Received         (144)      (21)     (264)       35

Capital Expenditure :
                                                 Payments to Acquire Fixed 
                                                 Assets                           (453)     (570)   (1,430)     (859)
                                                 Proceeds from Sale of Fixed 
                                                 Assets                             91         0       251         0

Acquisitions :
                                                 Payments to Acquire 
                                                 Subsidiaries                  (11,227)        0  (11,227)         0
                                                 Cash Acquired upon Acquisition 
                                                 of Subsidiaries                 1,023         0     1,023         0
                                                 
Net Cash Outflow before Management of Liquid
Resources and Financing                                                        (11,916)   (2,536)  (16,288)   (5,886)

Management of Liquid Resources                                                    (980)        70     3,621    4,207
                                                                               (12,896)   (2,466)  (12,667)   (1,679)
Financing :
                                                 Issues of Ordinary Share 
                                                 Capital                        15,868        44    15,920        66
                                                 Loans (Repaid)/Received        (1,076)     2,859   (1,806)    2,743
                                                 Leases Repaid                       0      (50)         0      (601)
                                                 Net Cash Inflow from Financing 14,792     2,853    14,114     2,208

Increase in Cash                                                                 1,897       387     1,447       530


IQE PLC

PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2006


RECONCILIATION OF OPERATING LOSS                                      Restated                                Restated
TO NET CASH OUTFLOW FROM                                           6 months to                            12 months to
OPERATING ACTIVITIES                                6 months to    31 Dec 2005         12 months to        31 Dec 2005
                                                    31 Dec 2006          Note3          31 Dec 2006              Note3
(All figures GBP000s)                                 Unaudited      Unaudited            Unaudited          Unaudited

Operating Loss                                          (2,526)         (1,219)             (3,976)             (4,327)

Depreciation of Fixed Assets                                935             492               1,617               1,559
Reversal of Impairment of Fixed Assets                        0         (1,737)                   0             (1,737)
Amortisation of Goodwill                                    166               0                 166                   0
Loss/(Gain) on Sale of Fixed Assets                          24               1                (38)                   1
Movement in Stocks                                        (256)           (121)             (1,536)               (880)
Movement in Debtors                                       (361)            (16)             (1,930)               (800)
Movement in Creditors                                       502             506                 595                 921
Government Grants Released                                 (19)            (19)                (39)               (409)
Government Grants Received                                    0               0                   0                 300
Non-Cash Share Option Costs                                 330             168                 501                 309

Net Cash Outflow from Operating Activities              (1,206)         (1,945)             (4,640)             (5,062)


IQE PLC

PRELIMINARY RESULTS FOR 12 MONTHS TO 31 DECEMBER 2006

                                                                                   Restated                   Restated
RECONCILIATION OF NET CASH FLOW                                    6 months to  6 months to  12 months to  12 months to
TO MOVEMENT IN NET (DEBT)/FUNDS                                    31 Dec 2006  31 Dec 2005   31 Dec 2006   31 Dec 2005
(All figures GBP000s)                                                Unaudited    Unaudited     Unaudited     Unaudited

Increase in Cash                                                         1,897          387         1,447           530

Management of Liquid Resources                                             980         (70)       (3,621)       (4,207)
New Loans                                                                    0      (3,000)             0       (3,000)
Loans Repaid                                                             1,077          141         1,807           257
Leases Repaid                                                                0           50             0           601

Change in Net Funds/(Debt) Resulting from Cash Flows                     3,954      (2,492)         (367)       (5,819)

Loans Acquired as a Result of Deferred Acquisition Considerations      (5,456)            0       (5,456)             0
Loans/Leases Acquired upon Acquisition of Subsidiaries                 (1,087)            0       (1,087)             0
Movement in Net (Debt)/Funds                                           (2,589)      (2,492)       (6,910)       (5,819)

Opening Net (Debt)/Funds                                               (3,426)        3,387           860         6,763
Exchange Differences                                                        97         (35)           132          (84)

Net (Debt)/Funds                                                       (5,918)          860       (5,918)           860


                                                                                                Restated
ANALYSIS OF NET (DEBT)/FUNDS                                                        As At          As At
                                                                              31 Dec 2006    31 Dec 2005
(All figures GBP000s)                                                           Unaudited      Unaudited

Cash at Bank and in Hand                                                            3,085          1,638
Cash at Bank Accessible between One and Seven Days                                    986          4,607

Total Cash at Bank and in Hand                                                      4,071          6,245

Loans Due after more than One Year                                                (7,226)        (3,646)
Loans Due within One Year                                                         (2,731)        (1,739)
Finance Leases Due after more than One Year                                           (8)              0
Finance Leases Due within One Year                                                   (24)              0

Total Borrowings                                                                  (9,989)        (5,385)

Net (Debt)/Funds                                                                  (5,918)            860


NOTES TO THE PRELIMINARY ANNOUNCEMENT

1    ACCOUNTING POLICIES

Basis of preparation

The preliminary financial information has been prepared on the basis of the
material accounting policies set out in the 2005 Annual Report and Accounts as
amended for the adoption of FRS 20 'Share Based Payment' (see Note 3 below).
The preliminary financial information was approved by the Board of Directors and
Audit Committee on 27 March 2007.

The preliminary information set out above does not constitute statutory accounts
within the meaning of the Companies Act 1985.  Comparative figures in the
financial statements for the year ended 31 December 2005, other than as adjusted
for the adoption of FRS 20, have been taken from the Group's audited statutory
accounts on which PricewaterhouseCoopers LLP expressed an unqualified opinion.
The results for   the six months to 31 December 2006, 30 June 2006 and 31
December 2005 are unaudited.

The preliminary results statement will be announced to all shareholders on the
London Stock Exchange and published on the Group's website on 28 March 2007.
Copies will be available to members of the public upon application to the
Company Secretary at Pascal Close, Cypress Drive, St Mellons, Cardiff CF3 0EG.

Accounting convention

The financial information is prepared under the historical cost convention and
in accordance with applicable UK accounting standards, which have been applied
on a consistent basis during the period under review except as detailed in Note
3.

Basis of consolidation

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

The acquisition of IQE RF LLC on 18 August 2006 and MBE Technology Pte Ltd on 29
December 2006 have been accounted for under acquisition accounting, whereby
these companies became part of the Group on their respective dates of
acquisition.

Goodwill

Goodwill is calculated as the excess of the fair value of the acquisition
consideration over the fair value of the acquired entity's assets and
liabilities.   Goodwill arising on acquisition of subsidiaries is capitalised
and amortised on a straight line basis over the Directors' estimated useful
economic life of the goodwill.  This is individually assessed for each
acquisition but does not exceed ten years.

Turnover

Turnover represents amounts receivable for goods and services provided in the
normal course of business net of value added tax and other sales related taxes.
Turnover is recognised on transfer of substantial risks and rewards.

Tangible fixed assets

Tangible fixed assets are stated at cost less accumulated depreciation and
provision for impairment.   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 yet to be brought into use.

Freehold buildings                                                            25 years
Short leasehold improvements                                                 5/27 years
Plant and machinery                                                          5/15 years
Fixtures and fittings                                                        4/5 years

Stocks

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

Research and development

Research and development expenditure is fully written off when incurred.


NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

Foreign currencies

Transactions in foreign currencies during the period are recorded 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 the overseas subsidiaries 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 directly to
reserves.

Pension costs

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

Government grants

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.

Taxation

Current tax, including UK corporation tax and foreign tax, is provided at
amounts expected to be paid (or recovered) using the tax rates and laws that
have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the balance sheet date where transactions or
events that result in an obligation to pay more tax in the future or a right to
pay less tax in the future have occurred at the balance sheet date.   Timing
differences are differences between the Group's taxable profits and its results
as stated in the financial statements that arise from the inclusion of gains and
losses in tax assessments in periods different from those in which they are
recognised in the financial statements.

A net deferred tax asset is regarded as recoverable and therefore recognised
only when, on the basis of all available evidence, it can be regarded as more
likely than not that there will be suitable taxable profits from which the
future reversal of the underlying timing differences can be deducted.

Deferred tax is measured at the average tax rates that are expected to apply in
the periods in which the timing differences are expected to reverse, based on
tax rates and laws that have been enacted or substantively enacted by the
balance sheet date.  Deferred tax is measured on a non-discounted basis.

Leases

Assets held under finance leases and hire purchase contracts are capitalised 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.    Provision is made at the balance sheet date for
the present value of future rentals under operating leases on vacated
properties.

Financial instruments

The only derivative instruments utilised 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.

Share based payment

The Group operates a share option scheme.  The fair value of the employee
services received in exchange for the grant of the options is recognised as an
expense. The total amount to be expensed over the vesting period is determined
by reference to the fair value of the options granted, which is calculated using
the Black-Scholes option pricing model.


NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

                                                      Restated                    Restated
                                      6 months to   6 months to  12 months to   12 months to
                                      31 Dec 2006   31 Dec 2005  31 Dec 2006    31 Dec 2005
2   EXCEPTIONAL GAINS                  Unaudited     Unaudited    Unaudited      Unaudited
                                        GBP000s       GBP000s      GBP000s        GBP000s
                                                       Note3                       Note3
    Exceptional gains comprise :
    Credited in cost of sales  :
    Trade accrual                                0       (1,737)            0          (1,737)
    Credited in other administrative
    costs :
    Onerous lease provisions                     0             0        (255)                0

    Exceptional gains                            0       (1,737)        (255)          (1,737)


The exceptional credit of £255,000 relates to the onerous lease provision in
respect of a vacant property at IQE (Europe) Limited which has been released to
the profit and loss account as the Group is no longer the tenant.  The
exceptional credit in 2005 of £1,737,000 relates to the release of a trade
accrual which the Directors considered to be no longer required.

3    SHARE BASED PAYMENT

The Group has adopted FRS 20 'Share Based Payment' during 2006.   The adoption
of this standard represents a change in accounting policy, and the comparative
figures for the six months ended 31 December 2005 and the full year ended 31
December 2005 have been restated accordingly.

The adoption of FRS 20 has resulted in an increase in employee costs of £330,000
during the six months ended 31 December 2006 (six months ended 31 December 2005:
£168,000).   The impact for the full year is an increase in employee costs of
£501,000 (2005: £309,000)

The charges recognised under FRS 20 represent the fair value of share options
awarded by the Group since 7 November 2002 over the estimated vesting periods of
the respective options.   The options have been valued using the Black-Scholes
option-pricing model.  Full details of the key assumptions used in this model
will be included in the Annual Report.

                                                         Restated                    Restated
                                         6 months to   6 months to  12 months to  12 months to
                                         31 Dec 2006   31 Dec 2005   31 Dec 2006   31 Dec 2005
4   LOSS PER SHARE                        Unaudited     Unaudited     Unaudited     Unaudited
                                                          Note3                       Note3

    Loss for the Period GBP000s               (2,670)       (1,240)       (4,241)       (4,292)

    Weighted Average Number of Ordinary   384,932,499   315,976,014   350,729,318   315,976,014
    Shares
    Diluted Share Options                   8,593,469     3,580,904     8,593,469     6,919,658

    Adjusted Weighted Average Number of   393,525,968   319,556,918   359,322,787   322,895,672
    Ordinary Shares

    Basic Loss Pence per Share                 (0.69)        (0.39)        (1.21)        (1.36)
    Diluted Loss Pence per Share               (0.69)        (0.39)        (1.21)        (1.36)


Basic loss per share is calculated by dividing the loss attributable to ordinary
shareholders by the weighted average number of ordinary shares during the
period.  Diluted loss per share is calculated by adjusting the weighted average
number of ordinary shares in issue on the assumption of conversion of all
dilutive potential ordinary shares.

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

FRS 22 requires the presentation of diluted Loss Pence per Share 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 and
warrants, net loss per share would only be increased by the exercise of the out
of the money options and warrants.  Since it seems inappropriate to assume that
option holders would act irrationally, no adjustment has been made to diluted
Loss Pence per Share for out of the money share options and warrants.

5    CONTINGENT LIABILITY

The Group received a claim in 2005 for approximately £1 million in respect of
national insurance contributions in relation to share options that were issued
in 1999.   Having sought legal opinion, the Board remains robust in its opinion
that the Group has meritorious defences to this claim.   Accordingly, no
provision has been made in the Preliminary Results.





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