Interim Results

IQE PLC
21 August 2002


                               21 AUGUST  2002


                                   IQE plc

                    2nd Quarter and First Half Results, 2002

IQE plc (IQE), the leading global outsource supplier of customised epitaxial
wafers to the semiconductor industry, presents its 2nd Quarter and First Half
Interim Results for the period ended 30 June 2002.

Key Points

-     Q2 sales were £6.357m, 12 % higher than the previous quarter 
      (Q1/2002:£5.68m). H1 sales were £12.037m, 54 % lower than the same
      period last year (H1/2001: £ 26.117m).

-     Q2 operating loss before goodwill amortisation, operating
      exceptional items and one off charges was £5.493m, compared with a loss of
      £4.977m in the previous quarter . First half operating loss (pre goodwill
      amortisation, exceptional items and one off charges) was £10.380m, 
      compared with a profit of  £ 2.556m in the same period last year.

-     Operating cash outflow for Q2 was reduced to £1.184m, 65% less than the 
      previous quarter (Q1/2002 : £3.248 m), despite higher operating losses, 
      due to strong cash flow management. First half operating cash outflow was 
      limited to £4.431m, compared with an outflow of  £1.320m for the same 
      period last year.

-     Gross cash at the end of Q2 was £23.817m, a reduction of £4.100m from Q1 
      including £0.811m  reduction in long term borrowing 

-     Comprehensive strategic review of the business undertaken, resulting in:-


•     Renewed focus on the strengthening Wireless, Lighting and
      Optical  Storage Markets

•     Continued strong focus on development of Strained Silicon; which
      recent industry announcements have confirmed is likely to be widely 
      adopted for next generation semiconductor / microprocessor products.

•     Highly focussed efforts on cash generation and working capital control

•     Significant cost control/reduction actions including additional
      redundancies of approximately 60 during Q3, reducing total workforce to 310.

•     The write down of goodwill of £33.4m, an asset impairment charge of £7.97m 
      and provisions predominately against slow moving stock of an additional 
      £4.36m.


Commenting on the results, Dr Drew Nelson, President and CEO, said....... ' The
semiconductor marketplace continues to be extremely challenging, and the
industry outlook generally has weakened during the last three months.  Against
that background, IQE has achieved a modest increase in sales, although the mix
of product resulted in a larger loss than last quarter. Strong cash management
continues to be a key focus for the Group and, following a full strategic review
of the market and the expected demand over the next 12 months, a number of key
steps have been initiated to conserve cash. As a result of this review, the
Board has decided to write off the goodwill being carried in the balance sheet
and to make a provision against the carrying value of certain other assets.
Notwithstanding the weak industry outlook, we continue to make significant
product progress, particularly with regard to our leading position with Strained
Silicon, which is quickly becoming recognised as the key material for next
generation microprocessors. We continue to believe strongly in the outsource
model and the Group's positioning, and that we will be well placed when demand
returns to the technology markets.'



For further information please contact:

Drew Nelson, President and CEO, IQE plc                 (029) 20 839405

Tim Thomson/Nicky Cronk, Buchanan Communications        [phone]



2nd QUARTER AND INTERIM RESULTS


INTRODUCTION

In reporting our results for Q1/2002, we stated that we were beginning to see
some improvements in trading, particularly in the wireless sector of our
business, and that we expected H1 to be the bottom of the current downturn for
us. We still believe this to be the case. Although the recovery of our wireless
business continues, the opto-electronic communications sector remains extremely
flat with no immediate prospect of a return to any significant level of
activity, reflecting the depressed state of the fibre optic industry.
Recognising this fluid market outlook, the Board has recently undertaken a
comprehensive strategic and operational review, which has considered the short,
medium and long term opportunities for the Group.

As a result of this review, although we do not see any significant worsening of
our trading position, the Board has concluded that it would be imprudent at this
stage to predict any major upturn for H2/2002 given the general weakness of the
economic recovery, particularly in technology markets. Furthermore, the Board
believes that the Group faces the possibility of activity levels in 2003 being
little better than those for 2002, although the Group has prospects and
potential for rapid growth in some areas of its activities.

With this scenario in mind, a number of actions have been taken to achieve an
operational structure and product focus which will preserve the Group's cash
resources at existing levels of activity, whilst allowing for increased output
should market demand return more quickly. In order to achieve this, strong
emphasis is being placed on securing the near term opportunities identified, and
R&D effort on longer term opportunities is being scaled back, whilst maintaining
the Group's ability to capitalise on them at the appropriate time.


RESULTS

Sales for the quarter were £6.357m, a 12% uplift on the preceding quarter. This
was mainly as a result of increasing sales to our wireless customers and the
initial sales of strained silicon wafers. The high level of operational gearing,
meant that because of lower selling prices, high valued substrate and raw
material stock, and continued low capacity utilisation, gross margins
deteriorated further in Q2, to -29.6% (Q1/2002: -21.4%). Although the US
operation is experiencing strong price pressure as the market returns, raw
materials reductions currently feeding through will minimise the impact of this,
which will, in turn, improve gross margins going forward.  Overall margins at
Wafer Technology were lower due to the higher proportion of lower margin GaAs
LED substrates shipped in the quarter, but again looking forward, this will be
partially offset by lower Gallium pricing.

Research and development costs in Q2/2002 were £0.731m, representing 11.5% of
sales (Q2/2001: £0.757m, 5.8% of sales), and were focussed on the near term
prospects of Strained Silicon, InP and InGaP HBT's, as well as 1.3um VCSELs and
TFOS (Three Five on Silicon). For H1/2002, R&D expenditure was £1.873m (15.6% of
sales) compared with  £1.296m for the same period last year. All research and
development expenditure was expensed in the quarter. SG&A expenses at £2.883m
were higher than in the prior quarter (Q1/2002: £2.620m), due primarily to
redundancy costs.

As a result of the above, the Group incurred an operating loss for the quarter,
before goodwill amortisation and operating exceptional items and one off
charges, of £5.493m, compared with a loss in the previous quarter of £4.977m.
After crediting net interest costs of £0.024m and charging operating exceptional
items of £0.545 million and goodwill amortisation relating to the Wafer
Technology acquisition of £0.455m, the Group operating result for the quarter
before tax was a loss of £6.469m.

Excluding capital expenditure, the Group reduced its operating cash outflow
substantially in the quarter to £1.184m, 65% less than the previous quarter (Q1/
2002: outflow of £3.248m) despite increased operating losses. This was as a
direct result of strong focus on the reduction of stocks and careful management
of working capital. Capital expenditure reduced further in the first half of
2002 to £3.618 m (H1/2001: £18.911m).

Gross cash at the end of the quarter was £23.817m, an overall reduction of
£4.100m from the end of the previous quarter. This outflow will be significantly
reduced in the coming quarters as a result of the actions taken following the
Strategic Review.



NON-RECURRING ITEMS

As part of the Strategic Review, the Board has also carried out a full
impairment analysis of fixed assets and goodwill.   Our reassessment of activity
levels for H2/2002 and the potential continuing market weakness in 2003 has
resulted in an additional charge to depreciation and operating charges of
£7.970m in respect of fixed assets in the US, and a write off of goodwill of
£33.411m which arose on the acquisition of Wafer Technology in November 2000.

The write-down of certain fixed assets at IQE Inc relates primarily to a
re-assessment of the value of the 4 MOVPE machines and associated cleanroom
infrastructure in Bethlehem, USA, for which there is no forecast activity in the
foreseeable future (through 2003), given the significant MOVPE capacity in
Cardiff.

Wafer Technology was acquired in November 2000 for a total consideration of
£40.392m excl. acquisition costs of which £26.382m was payable by the issue of
8.75 million shares by IQE at a price of £2.95/share and a further 0.5million
shares at  £1.16/share. The fair value of the assets acquired was £4.549m,
resulting in the creation of goodwill of £36.344m. During the last year Wafer
Technology has experienced a decline in sales activity to £1.254m in Q2/2002
from £2.087 in Q1/2001, as a result of weak demand and lower substrate prices.
This has been offset by a strong decline in Gallium metal prices, which have
fallen by approximately 70% during this period. Our current assessment of the
immediate and foreseeable activity in Wafer Technology through 2003 is such that
the Board has decided to take a prudent view and eliminate all of the goodwill
remaining from the acquisition. This results in a charge to the profit and loss
account of £33.411m in H1/2002. However, it is important to stress that Wafer
Technology remains an important element of the Group's strategy and is expected
to trade at cash break even in H2/2002.

A further charge of £3.2 million has been incurred in H1/2002, the majority of
which relates to increases in provisions against slow moving inventories.  Gross
stocks had already been reduced from £13.098m at June 2001 to £9.801m at June
2002 and we are taking additional actions to further reduce inventory levels
during the remainder of the year.

As part of the restructuring in IQE Europe in Q2/2002, we have provided for a
one-off charge of £0.465m in relation to the costs of terminating a property
lease.

An additional outcome of the review will be a further reduction in headcount
across the Group, beyond that previously announced, reducing the number employed
from 390 as at March 2002 to approximately 310 by September 2002.  The cost of
this restructuring will be a charge of approximately £500,000 against our
operating results in Q3/2002.



OPERATIONS

The Strategic Review has also resulted in a number of key actions that the Group
is currently implementing, including the following short, medium and long term
activities:



•           The need to focus strongly on key market growth areas of Strained
            Silicon, Wireless Components, Lighting (LEDs) and Optical Storage
•           Concentration of resources on projects with short to medium term
            returns.
•           Highly focused efforts on cash generation and working capital
            control
•           Active negotiation with raw material suppliers to reduce input
            costs.
•           Improvements in operating efficiencies to deal with larger volume
            contracts, especially in the US.
•           Only repair and maintenance capital expenditure required
•           Tight control of overhead costs.
•           Sales & Marketing activities focussed on key opportunity areas
            identified.
•           Maintenance of ability to respond quickly to any market upturn in
            communications areas.


IQE Inc has continued to see improvements to trading in the wireless sector,
although the strength of the recovery has been limited by the general weakness
in the technology marketplace. Excess inventory has now been cleared in many of
the customer channels and we are experiencing a pull through from current demand
for PAs and switches used in the mobile telecoms industry.

The Group's position with regard to Strained Silicon technology is developing
more quickly than anticipated.  Strained Silicon is being recognised as the key
material for next generation silicon microprocessors and the recent announcement
by Intel that strained silicon will be an integral part of its newest
microprocessor technology is a powerful endorsement for this material.  The
significance of this announcement, coupled with other positive statements from
leading foundries such as TSMC and UMC, in addition to IBM, clearly indicates
that this technology is rapidly being recognised as an essential future part of
the mainstream silicon industry at a variety of transistor sizes (e.g. 0.13um,
0.18um etc).  IQE Silicon Compounds has established a leadership position as the
pioneering strained silicon wafer foundry and has built a strong partnership
with Amberwave Systems Inc, a leading strained silicon technology provider and
the owner of a number of  key patents in this area.  IQE Silicon Compounds is
Amberwave's first and currently only wafer licensee and rapid development of a
production process has established a regular supply of high quality strained
silicon wafers into the industry.  At present, a number of leading IC
manufacturers are sampling this material and a variety of  evaluation and
reliability studies are underway.  If these prove to be successful, as expected,
then production quantities of wafers will start to be required during 2003.

Our Three Five on Silicon (TFOS) activity has continued to make progress, with
device results from PHEMT and HEMT structures grown on silicon substrates
demonstrating similar performance to conventional devices grown on GaAs
substrates.  Samples of these devices are soon to be supplied to early adopter
partners for evaluation. However, as a result of the substantial decline in GaAs
substrate prices, coupled with the need for further investment in process
technology by customers, the level of interest for InP on Si and GaN on Si has
become much greater than that for GaAs on Si. The Group is therefore now
focussing more of its efforts on these more advanced materials, although we will
continue to support customer driven programmes for GaAs on Si.  As a result IQE
has negotiated a license from Motorola for both InP and GaN materials on Si with
certain exclusive rights extending until the end of 2004


TRADING PROSPECTS

IQE experienced an extremely difficult trading environment during the first half
of 2002, due to the ongoing decline in the opto-electronic communications
industry partially offset by the recovery in the wireless sector. The outlook
for the remainder of 2002 remains challenging and as indicated earlier in this
statement, there is considerable doubt as to the extent of the strength of the
recovery at this point.  The Group has carried out  a full strategic review
which has resulted in a number of key actions to further reduce cash outgoings
at the current level of activity, and therefore to conserve its cash, without
significantly prejudicing its ability to respond to an earlier upturn in its
markets.  Clear focus has also been brought to both the product portfolio and R&
D projects, and operations will be highly targeted at near to medium term
opportunities.

The Group has nevertheless developed a very strong position in the industry and
a product range which covers an increasingly broad range of applications,
particularly with regard to new products for the mainstream silicon industry.

The Board continues to believe that, as the semiconductor industry recovers,
outsourcing will become a much more prominent part of the semiconductor
industry, and that IQE is powerfully placed to consolidate its position as the
leading global outsource supplier of specialist epi wafers within the overall
semiconductor industry.



Dr Drew Nelson
President and Chief Executive Officer
IQE plc



ACCOUNTS FOR 6 MONTHS TO JUNE 2002


                                         3 months to   3 months to   6 months to   6 months to    12 months to
PROFIT AND LOSS ACCOUNT          Note    30 Jun 2002   30 Jun 2001   30 Jun 2002   30 Jun 2001     31 Dec 2001
(All figures GBP000s)                      unaudited     unaudited     unaudited     unaudited         audited

Turnover                                       6,357        13,158        12,037        26,117          42,047
Cost of Sales                               (20,191)       (9,082)      (27,086)      (17,653)        (32,381)

Gross Profit/(Loss)                         (13,834)         4,076      (15,049)         8,464           9,666
Gross Profit/(Loss) %                        (217.6)          31.0       (125.0)          32.4            23.0

S G and A Costs :
     Research/Development                      (731)         (757)       (1,873)       (1,296)         (3,792)
     Selling/General/                        (3,348)       (2,027)       (5,968)       (4,612)         (9,341)
Administration

Operating Profit/(Loss) before              (17,913)         1,292      (22,890)         2,556         (3,467)
Goodwill/Exceptionals
Operating Profit/(Loss) % before             (281.8)           9.8       (190.2)           9.8           (8.2)
Goodwill/Exceptionals

Goodwill Written off               2        (33,866)         (451)      (34,302)         (910)         (1,835)
Exceptional Items                  3           (545)         (274)         (890)         (274)           (759)

Operating Profit/(Loss) after               (52,324)           567      (58,082)         1,372         (6,061)
Goodwill/Exceptionals
Operating Profit/(Loss) % after              (823.1)           4.3       (482.5)           5.3          (14.4)
Goodwill/Exceptionals

Interest Received/(Paid)                          24           123            12           418             211

Net Profit/(Loss) before Taxes              (52,300)           690      (58,071)         1,790         (5,850)
Net Profit/(Loss) %                          (822.7)           5.2       (482.4)           6.9          (13.9)

Current Taxes                                      0           198           (0)         (321)           (103)
Deferred Taxes                                     0         (267)           (0)         (267)             373
Dividends                                          0             0           (0)           (0)             (0)

Net Profit/(Loss) after Taxes               (52,300)           621      (58,071)         1,202         (5,580)


Basic Earnings Pence/Share                   (28.32)          0.38       (31.44)          0.73          (3.38)
Basic Earnings Pence/Share excl               (9.98)          0.65       (12.87)          1.29          (2.27)
Goodwill
Diluted Earnings Pence/Share       6         (28.32)          0.37       (31.44)          0.71          (3.38)
Diluted Earnings Pence/Share       6          (9.98)          0.64       (12.87)          1.25          (2.27)
excl Goodwill

Net Profit/(Loss) before                     (7,971)         2,524      (11,367)         5,115           2,196
Interest/Taxes/ Depreciation and
Amortization (EBITDA)


                                 3 months   3 months  3 months  3 months   6 months   6 months   6 months  6 months
                                       to         to        to        to         to         to         to        to
PROFIT AND LOSS ACCOUNT            30 Jun     30 Jun    30 Jun    30 Jun     30 Jun     30 Jun     30 Jun    30 Jun
ANALYSIS                             2002       2002      2002      2001       2002       2002       2002      2001
                                                 non                                       non
(All figures GBP000s)           recurring  recurring     total     total  recurring  recurring      total     total


Turnover                            6,357          0     6,357    13,158     12,127       (90)     12,037    26,117
Cost of Sales                     (8,236)   (11,955)  (20,191)   (9,082)   (15,131)   (11,955)   (27,086)  (17,653)

Gross Profit/(Loss)               (1,879)   (11,955)  (13,834)     4,076    (3,004)   (12,045)   (15,049)     8,464
Gross Profit/(Loss) %              (29.6)              (217.6)      31.0     (24.8)               (125.0)      32.4

S G and A Costs :
   Research/Development             (731)          0     (731)     (757)    (1,873)          0    (1,873)   (1,296)
   Selling/General/               (2,883)      (465)   (3,348)   (2,027)    (5,503)      (465)    (5,968)   (4,612)
Administration

Operating Profit/(Loss) before    (5,493)   (12,420)  (17,913)     1,292   (10,380)   (12,510)   (22,890)     2,556
Goodwill/Exceptionals
Operating Profit/(Loss) %          (86.4)              (281.8)       9.8     (85.6)               (190.2)       9.8
before Goodwill/Exceptionals

Goodwill Written off (note 2)       (455)   (33,411)  (33,866)     (451)      (891)   (33,411)   (34,302)     (910)
Exceptional Items (note 3)          (545)          0     (545)     (274)      (890)          0      (890)     (274)

Operating Profit/(Loss) after     (6,493)   (45,831)  (52,324)       567   (12,161)   (45,921)   (58,082)     1,372
Goodwill/Exceptionals
Operating Profit/(Loss) %         (102.1)              (823.1)       4.3    (100.3)               (482.5)       5.3
after Goodwill/Exceptionals

Interest Received/(Paid)               24          0        24       123         12          0         12       418

Net Profit/(Loss) before Taxes    (6,469)   (45,831)  (52,300)       690   (12,150)   (45,921)   (58,071)     1,790
Net Profit/(Loss) %               (101.8)              (822.7)       5.2    (100.2)               (482.4)       6.9

Current Taxes                           0          0         0       198        (0)          0        (0)     (321)
Deferred Taxes                          0          0         0     (267)        (0)          0        (0)     (267)
Dividends                               0          0         0         0        (0)          0        (0)       (0)

Net Profit/(Loss) after Taxes     (6,469)   (45,831)  (52,300)       621   (12,150)   (45,921)   (58,071)     1,202


Basic Earnings Pence/Share         (3.50)              (28.32)      0.38     (6.58)               (31.44)      0.73
Basic Earnings Pence/Share         (3.26)               (9.98)      0.65     (6.10)               (12.87)      1.29
excl Goodwill
Diluted Earnings Pence/Share       (3.50)              (28.32)      0.37     (6.58)               (31.44)      0.71
(note 6)
Diluted Earnings Pence/Share       (3.26)               (9.98)      0.64     (6.10)               (12.87)      1.25
excl Goodwill (note 6)

Net Profit/(Loss) before Interest/Taxes/
Depreciation and Amortistion      
(EBITDA)                          (4,143)    (3,828)   (7,971)     2,524    (7,449)    (3,918)   (11,367)     5,115
                                  




                                                         As At            As At            As At
BALANCE SHEET                                      30 Jun 2002      30 Jun 2001      31 Dec 2001
(All figures GBP000s)                                unaudited        unaudited          audited

Fixed Assets :
     Intangible Fixed Assets                                 0           35,300           34,658
     Tangible Fixed Assets                              65,201           69,439           74,193
     Investment in Own Shares                                2                0                3
     Capitalized Research and Development                    0              250                0
     Total Fixed Assets                                 65,203          104,989          108,854

Current Assets :
     Stocks                                              6,981           12,881           12,277
     Debtors                                             4,813           13,652            7,495
     Cash and Bank                                      23,817           19,706           30,532
     Total Current Assets                               35,611           46,239           50,304

Creditors Falling Due within One Year                 (10,841)         (21,358)         (11,945)

Net Current Assets                                      24,771           24,882           38,359

Total Assets less Current Liabilities                   89,974          129,871          147,213

Creditors Falling Due after One Year :
     Deferred Income                                     (102)             (57)            (173)
     Deferred Tax Liability                            (1,215)          (1,857)          (1,217)
     Long Term Borrowings                              (6,984)          (8,228)          (8,211)

Net Assets                                              81,673          119,728          137,612

Capital and Reserves :
     Called Up Share Capital                             1,853            1,641            1,824
     Merger Reserve                                      (605)            (605)            (605)
     Share Premium Account                             140,220          111,875          136,661
     Shares to be Issued                                    70              655              938
     Retained Earnings                                (60,561)            4,292          (2,490)
     Other Reserves                                        696            1,870            1,284

Total Equity Shareholders' Funds                        81,673          119,728          137,612





The financial statements were approved by
the Directors of IQE plc on 20 August 2002



JL Coventry
Company Secretary




CASH FLOW STATEMENT                       3 months to 3 months to 6 months to 6 months to  12 months to
                                          30 Jun 2002 30 Jun 2001 30 Jun 2002 30 Jun 2001   31 Dec 2001
(All figures GBP000s)                       unaudited   unaudited   unaudited   unaudited       audited

Net Inflow/(Outflow) from Operations          (1,184)     (2,717)     (4,431)     (1,320)       (7,066)

Returns on Investment and Servicing
Finance :
Interest Received/(Paid)                           24         123          12         418           211

Capital Expenditures :
     Purchases of Fixed Assets less           (2,252)     (7,786)     (3,618)    (18,911)      (25,169)
     Leases Received
     Payments to Acquire Investments in             0           0           0           0             0
  Subsidiaries
     Capitalized Development Costs                  0           0         (0)       (250)             0

Dividends Received/(Paid)                           0           0           0           0             0

Taxes Received/(Paid)                            (58)         (1)        (58)         389           322

Net Inflow/(Outflow) before Financing         (3,470)    (10,381)     (8,095)    (19,674)      (31,702)

Financing :
     Issues of Ordinary Share Capital             181          28       3,078          81        25,049
     Loans Received/(Repaid)                    (163)     (1,155)       (440)       (180)         (463)
     Leases (Repaid)                            (648)         (9)     (1,257)        (33)       (1,863)

Net Inflow/(Outflow) from Financing             (630)     (1,136)       1,381       (132)        22,723

Increase/(Decrease) in Cash and
Bank Overdrafts                               (4,100)    (11,517)     (6,714)    (19,806)       (8,979)




RECONCILIATION OF PROFIT TO CASH INFLOW/
(OUTFLOW) FROM OPERATIONS
                                             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
                                                 2002       2001       2002       2001

(All figures GBP000s)                       unaudited  unaudited  unaudited  unaudited     audited

Operating Profit after Goodwill/             (52,324)        567   (58,082)      1,372     (6,061)
Exceptionals

Depreciation Charged                           10,487      1,506     12,413      2,833       6,422
Goodwill Written off                           33,866        451     34,302        910       1,836
(Gain)/Loss on Sale of Fixed Assets                 0          0          0          0           0
(Increase)/Decrease in Stocks                   3,663    (2,598)      5,296    (4,996)     (4,392)
(Increase)/Decrease in Debtors                  1,776      (762)      2,682    (3,341)       2,882
Increase/(Decrease) in Creditors                1,389    (1,875)      (971)      1,914     (7,857)
Grants Released                                   140        (6)        108       (12)       (504)
Grants Received                                 (180)          0      (180)          0         608

Net Cash Inflow/(Outflow) from Operations     (1,184)    (2,717)    (4,431)    (1,320)     (7,066)




RECONCILIATION OF NET CASH FLOW TO          3 months   3 months   6 months   6 months 12 months to
MOVEMENT IN NET FUNDS                             to         to         to         to

                                              30 Jun     30 Jun     30 Jun     30 Jun  31 Dec 2001
                                                2002       2001       2002       2001

(All figures GBP000s)                      unaudited  unaudited  unaudited  unaudited      audited

Increase/(Decrease) in Cash                  (4,100)   (11,517)    (6,714)   (19,806)      (8,979)

Loans (Received)/Repaid                          163      1,155        440        180          463
Leases Repaid                                    648          9      1,257         33        1,863

Change in Funds Resulting from Cash Flows    (3,289)   (10,354)    (5,017)   (19,593)      (6,653)

New Finance Leases                              (16)    (3,922)      (392)    (3,922)      (7,054)

Net Movement                                 (3,305)   (14,276)    (5,409)   (23,515)     (13,707)
Net Funds at Start                            17,000     23,481     19,104     32,813       32,813
Exchange Differences                             (1)         92        (1)          0          (2)

Net Funds at Close                            13,693      9,298     13,693      9,298       19,104

Analysis of Net Funds :
     Cash and Bank                            23,817     19,706     23,817     19,706       30,532
     Debt Due after One Year                 (2,157)    (3,395)    (2,157)    (3,395)      (2,899)
     Debt Due within One Year                  (976)      (578)      (976)      (578)        (674)
     HP Creditors/Finance Leases             (6,991)    (6,553)    (6,991)    (6,435)      (7,855)

     Total                                    13,693      9,180     13,693      9,298       19,104



RECONCILIATION OF UKGAAP TO IAS            3 months to   3 months   6 months   6 months 12 months to
                                                               to         to         to
                                           30 Jun 2002     30 Jun     30 Jun     30 Jun  31 Dec 2001
                                                             2001       2002       2001

(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 Operations          (1,242)    (2,719)    (4,489)      (931)      (6,744)
Cash Inflow/(Outflow) from Investing           (2,228)    (7,663)    (3,606)   (18,743)     (24,958)
Cash Inflow/(Outflow) from Financing             (630)    (1,136)      1,381      (132)       22,723

Net Increase/(Decrease) in Cash and Cash       (4,100)   (11,517)    (6,714)   (19,806)      (8,979)
Equivalents

Opening Cash and Cash Equivalents per IAS       27,918     31,223     30,533     39,512       39,512
Exchange Difference                                  0          0          0          0

Closing Cash and Cash Equivalents per IAS       23,818     19,706     23,819     19,706       30,533


(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                 (52,300)         621    (58,071)      1,202    (5,580)
Exceptionals
Dividends                                           0           0         (0)        (0)           (0)
Retained Profit/(Loss) per UK GAAP            (52,300)         621    (58,071)      1,202       (5,580)
Goodwill Amortization                             (14)        (14)        (28)       (28)          (57)

Retained Profit/(Loss) per IAS                (52,314)         607    (58,099)      1,174       (5,637)


Equity Shareholders' Funds per UK GAAP         81,673     119,728      81,673    119,728       137,612
Goodwill Capitalization at Cost                   284         284         284        284           284
Accumulated Goodwill Amortization                (284)       (241)       (284)      (241)         (270)

Equity Shareholders' Funds per IAS             81,673     119,770      81,673    119,770       137,626




NOTES TO THE ACCOUNTS

1    BASIS OF PREPARATION

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

*    Turnover represents amounts invoiced, exclusive of value added
taxation.

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

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

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

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

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

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

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

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

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

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

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

*    Deferred taxation is provided in full on timing differences that
result in an obligation at the balance sheet date to pay more tax, or a right to
pay less tax, at a future date at rates expected to apply when they crystallize
based on current tax rates and law.    Timing differences arise from the
inclusion of items of income and expenditure in taxation computations in periods
different from those in which they are included in financial statements.

     Deferred tax is not provided on timing differences arising from
the revaluation of fixed assets where there is no binding contract
to dispose of those assets.  Deferred tax assets are recognized to the extent
that it is regarded as more likely than not that they will be recovered.
Deferred tax assets and liabilities are not discounted

*    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 had been
capitalized and was being amortized over its useful life, which was considered
by the Directors to be 20 years.   However, the Directors have carried out an
evaluation of the investment and, in the light of current market conditions,
have considered that no goodwill exists.   Accordingly, the remaining value of
goodwill has been written off.


3    EXCEPTIONAL ITEMS                  2002                2001

     Exceptional items comprise :

                Legal fees             £890K               £274K

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


4     CAPITAL COMMITMENTS

The Group has entered into a supply agreement allowing it to purchase reactors 
at a discount from list price.   As at June 2002, the Group has agreed to 
purchase a further nine reactors at a contracted price of £10,880K and may be 
liable to repay the discount from list price it received on previous
purchases under this agreement should it not comply with its contracted purchase
commitment.  The total discount received as at June 2002 was £1,547K.


5     CONTINGENT LIABILITY

A claim has been made against the Group alleging breaches of a licence agreement.  
The Group is vigorously defending this action and at this stage the outcome is 
uncertain.   Due to the uncertainty of the outcome it is not possible to 
conclude as to whether a probable transfer of economic benefits will be required 
to settle any obligation, nor can a reliable estimate be made of the amount of 
such an obligation should such an obligation result from the claim.   
Accordingly, under the provisions of FRS 12, no provision has been made
in the accounts for any potential future liability that may arise from the
claim.

As discussed in note 3, the Group has expensed in the period legal fees 
totalling £890K (2001 : £274K) in respect of defending this claim.
In the view of the Directors, the Group may incur further legal costs of up to
£750K in the remainder of the year ended 31 December 2002 should this legal
action continue.


6      EARNINGS PER SHARE

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



INDEPENDENT REVIEW REPORT TO IQE PLC

Introduction

We have been instructed by the company to review the financial information for
the six months ended 30 June 2002 which comprises the profit and loss account,
the balance sheets, the cash flow statement and related notes 1 to 6.  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 the 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 2002.





Deloitte & Touche
Chartered Accountants
Cardiff
20 August, 2002






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