Interim Results

IQE PLC
18 August 2004


Embargoed until 7:00am                                            18 August 2004

                                    IQE plc

                            First Half Results 2004


IQE plc (IQE), the leading global outsource supplier of customised epitaxial
wafers to the semiconductor industry, today announces its Results for the half
year ended 30 June 2004.

Key Points
     
•    Half year ended 30 June 2004 sales in dollar terms increased slightly to 
     $14.582m compared with the previous half year (H2/2003: $14.404m), the 
     first revenue increase for three years, although year on year sales fell by 
     9.4% (H1/ 2003: $16.086m) principally due to strong average selling price 
     declines
     
•    However, due to adverse exchange rate movements, first half sales in 
     sterling fell 7.7% at £8.028m (H2/2003: £8.697m) and were down 20.1% 
     compared with H1/2003 (H1/2003: £10.056m)

•    Operating loss down 14.8% at £5.619m (H1/2003: £6.595m)

•    Pre tax loss down 18.6% at £5.507m (H1/2003: £6.768m)
     
•    Operating cash outflow down 7.0% at £4.642m (H1/2003: £4.993m)

•    Cash at £15.552m (H1/2003: £10.695m)
     
•    Operating cash breakeven run rate lowered to £26.500m revenue (H1/ 2003: 
     £44.300m) through further operational efficiency improvements and other
     cost cutting initiatives

•    Wafer Technology subsidiary profitable in three of last four months
     
•    Plan remains to be EBITDA breakeven exiting 2004

•    Continue to progress significant outsourcing opportunities
     
•    Wafer volumes continue to increase with over 63,000 wafers shipped during 
     H1/2004, up 10.5% (H1/2003: 57,000 wafers).  A significant number of
     qualifications continue with several now progressing into pilot production

Commenting on the results, Dr Drew Nelson, President and CEO, said ....... '
Sales revenue in dollar terms increased for the first time in three years as
wafer volumes continued to increase and price declines began to stabilise.
However, sterling revenues continued to decline due to adverse exchange rate
movements between sterling and the dollar.  Despite this revenue reduction, our
cost cutting initiatives and increased operational efficiencies led to lower
losses and reduced cash outflows.  Further progress has been made in the first
half of 2004 in reducing the Group's cash breakeven revenue point to £26.5m, and
our plan remains to be exiting 2004 in an ongoing EBITDA breakeven situation.

In addition, the Group made a number of positive achievements with the
qualification of new products during the first half, although the timing of
these successes has yet to have a positive impact on the sales revenues, and we
continue to make progress on significant contract outsource opportunities.'


For further information please contact:

IQE plc:                                               [phone]
                                                       [phone]
Drew Nelson, President & Chief Executive
Stuart Hall, Finance Director
Chris Meadows, Investor Relations Manager                                                      
                                                       [phone]
Tim Thompson/Nicola Cronk, Buchanan Communications:    [phone]


INTERIM RESULTS 2004

INTRODUCTION

IQE's products are found in a wide range of leading-edge consumer, communication
and computing applications from DVD systems to mobile handsets.  The Company
produces atomically engineered  semiconductor wafers, built to produce precisely
defined electrical and optical characteristics, which are used to make the key
devices lying at the heart of virtually all high technology products and
systems.

The semiconductor industry is characterised by its highly innovative use and
application of technology, and IQE has proved to be an ideal partner for many
key industry players, contributing both innovative solutions and volume
production expertise. IQE remains extremely well positioned to act as the
industry's leading proponent of the trend towards outsourcing thanks to its
broad product portfolio, advanced and efficient production systems, and large
production capacity.

OVERVIEW

There was an encouraging increase in US dollar sales between H2/2003 and H1/2004
as wafer volumes continued to increase and prices began to stabilise. The
increase in US dollar sales was achieved despite the loss of a significant
volume of sales from three key US customers, each of whom had suffered a decline
in orders from a leading mobile handset manufacturer.    However, overall
sterling revenues fell in H1/2004 as a result of the steep fall in the value of
the US dollar when compared to last year.

The Group continued to improve operational efficiencies and these paid dividends
during H1/2004 with improvements in production yields and yielded materials
costs which resulted in a significant reduction in losses despite the lower
sales revenue figure.   The increased operational efficiencies were achieved
through improved operational procedures, tight control over supply chain costs
and headcount reductions.  Capital expenditure and research and development
costs remained very low and fixed costs were further reduced during the half
year.

Total shipments of III-V epiwafers, Si epiwafers and III/V substrates increased
by 10.5% during H1/2004 compared with H1/2003 to over 63,000 wafers (H1/2003:
57,000 wafers).

As a result of the improvements made and a significant increase in wafer output
as customers move into higher volume production, the Group's short term
objective of reaching operating cash breakeven on a monthly basis by the end of
the year remains achievable. Further progress was made in successfully
completing product qualifications with strategically important customers in the
Far East.  This will have a positive impact in H2/2004 as production is expected
to increase from pilot levels to full production during the next six months.

RESULTS

The Group's operating results are detailed in the Profit and Loss Account and
Cash Flow Statements.

H1/2004 sales were £8.028m (H2/2003: £8.697m) (H1/2003: £10.056m), which
represented a 20.1% reduction compared with the same period last year.  This was
mainly due to reduced sales of wireless materials at IQE Inc and by the impact
of the significant weakness in the US dollar.   The average exchange rate for H1
/2004 was 13.5% worse than the rate for the same period last year at USD 1.8165/
GBP (H1/2003: USD 1.5997/GBP) resulting in a reduction of approx £1.000m in the
sales line.

H1/2004 gross loss was £1.929m (H2/2003: loss £1.715m) (H1/2003: loss £1.562m),
which represented a 23.5% increase compared with the same period last year.
This is equivalent to a negative gross margin of 24.0% (H1/2003: negative
15.5%).  Sales price reductions and adverse exchange rates were the main reasons
for this worsening of the Group's performance, although some benefit was gained
by negotiating lower raw material prices from key suppliers.

H1/2004 research and development costs were £0.481m (H2/2003: £0.668m) (H1/2003:
£1.172m), which represented a 59.0% reduction compared with the same period last
year.  Research and development costs were 6.0% of H1/2004 sales, and all
research and development costs were expensed in the period.

H1/2004 selling, general and administration (comprising distribution costs and
other administrative expenses) were £3.209m (H2/2003: £4.438m) (H1/2003:
£3.861m), which represented a 16.9% reduction compared with the same period last
year.  This included a provision for exceptional items of £0.221m (H2/2003:
£0.522m) (H1/2003: £0.306m) in respect of the cost of 40 staff redundancies at
IQE Europe, IQE Inc and IQE Silicon.

As a result of the above, the H1/2004 operating loss was £5.619m (H2/2003:
£6.821m) (H1/2003: £6.595m), which represented a 14.8% reduction compared with
the same period last year.  The H1/2004 pre tax loss was £5.507m (H2/2003:
£6.872m) (H1/2003: £6.768m), representing an 18.6% reduction compared with the
same period last year.

H1/2004 operating cash outflow was £4.642m (H2/2003: £5.106m) (H1/2003:
£4.993m), which represented a 7.0% reduction compared with the same period last
year and was equivalent to an outflow of approx £0.770m/month.   Cash management
continued to be a key priority for the Group throughout the period with the
focus firmly placed on reducing operating costs and careful management of
working capital.   Debtors and creditors generated a combined cash flow
improvement in H1/2004 of £0.471m but this was largely offset by a stock
increase of £0.514m, most of which occurred at IQE Inc.

H1/2004 capital expenditure totalled £0.134m (H2/2003: £0.149m) (H1/2003:
£0.085m). H1/2004 loan and lease repayments totalled £1.589m (H2/2003: £1.618m)
(H1/2003: £2.052m), reducing total borrowings at the end of the period to
£4.346m (H2/2003: £5.962m) (H1/2003: £7.650m).  Gross cash on hand at the end of
the period was £15.552m (H2/2003: £21.738m) (H1/2003: £10.695m).

OPERATIONS

IQE Inc

IQE Inc suffered a setback in order volumes during the second quarter of 2004 as
three of its major customers supplying into the wireless sector experienced a
sudden decline in orders from a major player in the mobile handset marketplace.
Consequently, revenues for the first half of the year were less than
originally forecast but swift action was taken by Management to further reduce
costs.   Despite the temporary loss of orders from those customers, wafer
shipments in H1/2004 were only fractionally down on H2/2003 with a total of
180,000 sq. in. being shipped.   All three major customers are predicting an
upturn in the second half of the year.

All operational metrics continued to improve, with customer returns at an
all-time low of less than 0.3%, over 96% on time delivery, and increased wafer
manufacturing yields.

IQE Inc remains qualified as an approved supplier to a number of the world's top
RF component companies and is likely to become cash generative before the year
end as demand from these customers increases during the second half of the year.

IQE (Europe) Limited

Major progress was made during H1/2004 in developing material for new product
sectors, particularly for new customers in the Far East.   IQE Europe
successfully qualified its material for consumer-based systems such as CD/DVD
players, DVD-RW, minidisks and ROMs, and pilot production quantities of products
in this sector are now being shipped.  Volumes are expected to increase through
the second half of the year as these products are moved into volume production.
The Company has also been subject to significantly increased qualification
activity resulting in a number of visits to the UK facility by senior personnel
from companies based in Japan, Korea and Taiwan.

Demand for optical materials from the Company's traditional communications
markets remained weak during H1/2004.  However, the Company remains qualified
and holds 'preferred vendor status' for a wide range of optical communications
products.  Opportunities are re-emerging for devices such as VCSELs, which are
deployed in short distance communications systems, sensing and imaging
applications, lasers, detectors, and other optical communications devices as
this market recovers.

IQE Silicon Compounds Limited

Strained silicon remains on target to become the industry's key material for
advanced high speed silicon applications such as microprocessors and mixed
signal processors.  IQE Silicon launched its new 20% SiGe product during H1/2004
to complement its existing 17% offering, both of which are targeted at the sub
100nm technology node. The Company continues to receive positive feedback from
device foundries and integrated device manufacturers who are actively involved
in evaluating samples, indicating that IQE's UltraSmooth strained silicon
product is 'best in class'. One major opportunity that has previously been
reported has yet to provide feedback due to internal delays in completion in
processing the material - ironically, delays brought about by current capacity
constraints within the silicon industry.  The Company's strained silicon
material continues to be evaluated by several of the world's leading integrated
chip manufacturers.

The Company continues to generate a steady revenue stream from its basic silicon
epitaxy work and expects to win additional business now that ATMI, a major
competitor in this sector, may no longer be seen as an 'independent' foundry
following their recent acquisition by IR.

Wafer Technology Limited

Wafer Technology continued to see a steady improvement in wafer shipments during
the first half of the year, with an increase of 7.7% in terms of wafers shipped
compared with H1/2003 and we are pleased to report that the business has
achieved profitability in three of the last four months. Much of the increase
can be accounted for by the continuing recovery in the LED market although a
number of encouraging new qualifications are expected to generate further demand
for the Company's broad range of GaAs products throughout the second half of
2004.  Demand for the narrow gap materials (InSb, GaSb) produced by the Company
was also sustained and was complemented by the development of next-generation
larger diameter products which will be offered to the market during early 2005.

TRADING PROSPECTS

During the first half year, each of the Group's operating divisions experienced
an increase in the number of wafers shipped compared with the previous half
year, with total volumes up by 10.5% compared with H1/2003.

Increased productivity and operational efficiencies resulted in an improved
profit and loss account for the half year despite reduced sterling revenues.
Those improvements, together with a number of successful qualifications
transferring into production and strong indications that the slow-down in some
of the Group's wireless customers was of a temporary nature, lead the Directors
to believe that the Group will see a continued upturn during the next six months
and that IQE will remain on track to reach an ongoing EBITDA breakeven position
by the year end.


Dr Drew Nelson
President and Chief Executive Officer
IQE plc


INTERIM RESULTS FOR 6 MONTHS TO 30 JUNE 2004


                                                  6 months to 6 months to 6 months to  12 months to
CONSOLIDATED PROFIT AND LOSS ACCOUNT              30 Jun 2004 31 Dec 2003 30 Jun 2003   31 Dec 2003
(All figures GBP000s)                       Note    Unaudited   Unaudited   Unaudited       Audited


Turnover from Continuing Operations                     8,028       8,697      10,056        18,753
Cost of Sales                                         (9,956)    (10,412)    (11,619)      (22,031)

Gross Loss                                            (1,929)     (1,715)     (1,562)       (3,278)
Gross Loss %                                           (24.0)      (19.7)      (15.5)        (17.5)

Operating Expenses :
    Distribution Expenses                               (605)       (755)       (750)       (1,555)
    Administrative Expenses :
      Research/Development                              (481)       (668)     (1,172)       (1,840)
      Other Administrative Expenses

     (including goodwill amortisation
      and impairment and exceptional items)  1,2      (2,604)     (3,683)     (3,111)       (6,744)

                                                      (3,690)     (5,106)     (5,033)      (10,139)

Operating Loss before goodwill amortisation and
  impairment and exceptional items                    (5,397)     (6,299)     (6,289)      (12,589)

Other Operating Expenses :
    Exceptional items                         2         (221)       (522)       (306)         (828)


Operating Loss from Continuing Operations             (5,619)     (6,821)     (6,595)      (13,417)
Operating Loss % from Continuing Operations            (70.0)      (78.4)      (65.6)        (71.5)

Interest Received/(Paid)                                  111        (51)       (173)         (223)

Loss on Ordinary Activities before Taxation           (5,507)     (6,872)     (6,768)      (13,640)
Loss %                                                 (68.6)      (79.0)      (67.3)        (72.7)

Current Taxation                                            0           0           0             0
Deferred Taxation                                           0           0           0             0

Retained Loss for the Period                          (5,507)     (6,872)     (6,768)      (13,640)

Basic Earnings Pence/Share                    3        (1.75)      (3.31)      (3.60)        (6.57)
Diluted Earnings Pence/Share                  3        (1.75)      (3.31)      (3.60)        (6.57)

Net Loss before Interest/Taxes/Depreciation
and Amortisation (EBITDA)                             (4,599)     (5,766)     (5,534)      (11,301)


                                                     
TOTAL RECOGNISED GAINS AND LOSSES AND MOVEMENT       6 months to 6 months to 6 months to 12 months to
IN SHAREHOLDERS' FUNDS                               30 Jun 2004 31 Dec 2003 30 Jun 2003  31 Dec 2003
(All figures GBP000s)                                  Unaudited   Unaudited   Unaudited      Audited

TOTAL RECOGNISED GAINS AND LOSSES

Loss for the Period                                      (5,507)     (6,872)     (6,768)     (13,640)
Currency Translation Differences on Foreign Currency
     Net Investments                                        (43)       (157)       (198)        (356)

Total Recognised Gains and Losses relating to the        (5,550)     (7,029)     (6,966)     (13,996)
Period

MOVEMENT IN SHAREHOLDERS' FUNDS

Opening balance                                           26,057      15,177      21,937       21,936

Shares Issued net of Issue Costs                              68      17,909         207       18,116
Foreign Exchange Translation Differences                    (43)       (157)       (199)        (355)
Loss Attributable to Members of the Group                (5,507)     (6,872)     (6,768)     (13,640)

Closing balance                                           20,575      26,057      15,176       26,057


                                                           As At        As At        As At       As At
   CONSOLIDATED BALANCE SHEET                        30 Jun 2004  31 Dec 2003  30 Jun 2003 31 Dec 2003
   (All figures GBP000s)                               Unaudited      Audited    Unaudited     Audited

   Fixed Assets                                           10,378       11,364       12,551      11,364

   Current Assets :
       Stocks                                              3,978        3,464        4,295       3,464
       Debtors                                             2,356        2,439        2,955       2,439
       Cash at Bank and in Hand                           15,552       21,738       10,695      21,738

       Total Current Assets                               21,886       27,641       17,945      27,641

   Creditors Falling Due within One                      (8,124)      (8,606)     (10,348)     (8,606)
   Year

   Net Current Assets                                     13,762       19,035        7,598      19,035

   Total Assets less Current                              24,140       30,399       20,148      30,399
   Liabilities

   Creditors Falling Due after more
   than One Year :
       Deferred Income                                     (385)        (385)        (452)       (385)
       Long Term Borrowings                              (2,387)      (3,056)      (4,520)     (3,056)
       Total Creditors Falling Due after more
       than One Year                                     (2,772)      (3,441)      (4,972)     (3,441)

   Provision for Liabilities and                           (793)        (901)            0       (901)
   Charges

   Net Assets                                             20,575       26,057       15,176      26,057

   Capital and Reserves :
       Called-up Share Capital                             3,154        3,151        1,885       3,151
       Share Premium                                     157,147      157,118      140,499     157,118
       Shares to be Issued                                   216          180          155         180
       Merger Reserve                                      (605)        (605)        (605)       (605)
       Profit and Loss Account                         (138,654)    (133,147)    (126,276)   (133,147)
       Exchange Rate Reserve                               (683)        (640)        (482)       (640)

   Total Equity Shareholders' Funds                       20,575       26,057       15,176      26,057


   Approved by the Directors of IQE plc on 17 August 2004

                                                     6 months     6 months     6 months     12 months
                                                           to           to           to            to
CONSOLIDATED CASH FLOW STATEMENT                  30 Jun 2004  31 Dec 2003  30 Jun 2003   31 Dec 2003
(All figures GBP000s)                               Unaudited    Unaudited    Unaudited       Audited


Net Cash Outflow from Operating Activities            (4,642)      (5,106)      (4,993)      (10,100)

Returns on Investment and Servicing of
Finance :
    Interest Received/(Paid)                              111         (51)        (173)         (223)

Taxation :
    UK and US corporation taxes                             0            0            0             0

Capital Expenditure :
    Payments to Acquire Fixed Assets less               (134)        (149)         (85)         (234)
    Leases
    Proceeds from Sale of Fixed                             0           58           76           134
    Assets

Net Cash Outflow before Management of Liquid
Resources and Financing                               (4,665)      (5,248)      (5,175)      (10,423)

Management of Liquid Resources                          6,921     (11,800)        6,250       (5,550)

                                                        2,256     (17,048)        1,075      (15,973)
Financing :
    Issues of Ordinary Share Capital                       68       17,909          207        18,116
    Repayment of Loans                                  (202)        (100)        (878)         (978)
    Repayment of Leases                               (1,387)      (1,518)      (1,174)       (2,692)

Net Cash (outflow)/Inflow from                        (1,521)       16,291      (1,845)        14,446
Financing

Increase/(Decrease) in Cash                               736        (757)        (770)       (1,527)



                                                       6 months     6 months     6 months    12 months 
RECONCILIATION OF OPERATING LOSS                             to           to           to           to
TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES       30 Jun 2004  31 Dec 2003  30 Jun 2003  31 Dec 2003
(All figures GBP000s)                                 Unaudited    Unaudited    Unaudited      Audited


Operating Loss                                          (5,619)      (6,821)      (6,595)     (13,417)

Depreciation and Impairment of Fixed Assets               1,019        1,056        1,061        2,118
Loss on Sale of Fixed Assets                                  0           46            0           46
Movement in Stocks                                        (514)          831          693        1,524
Movement in Debtors                                          83          517          766        1,282
Movement in Creditors                                       388        (668)        (917)      (1,586)
Government Grants Released                                    0         (67)            0         (67)

Net Cash Outflow from Operating Activities              (4,642)      (5,106)      (4,993)     (10,100)



                                                      6 months     6 months     6 months    12 months 
RECONCILIATION OF NET CASH FLOW                             to           to           to           to
TO MOVEMENT IN NET FUNDS                           30 Jun 2004  31 Dec 2003  30 Jun 2003  31 Dec 2003
(All figures GBP000s)                                Unaudited    Unaudited    Unaudited      Audited


Increase/(Decrease) in Cash                                736        (757)        (770)      (1,527)

Management of Liquid Resources                         (6,921)       11,800      (6,250)        5,550
Loans Repaid                                               202          100          878          978
Leases Repaid                                            1,387        1,518        1,174        2,692

Change in Net Funds Resulting from Cash Flows          (4,596)       12,661      (4,968)        7,693

Opening Net Funds                                       15,776        3,045        7,959        7,959
Exchange Differences                                        27           70           54          124

Closing Net Funds                                       11,206       15,776        3,045       15,776


                                                       6 months     6 months     6 months    12 months 
                                                             to           to           to           to
ANALYSIS OF NET FUNDS                               30 Jun 2004  31 Dec 2003 30 Jun 2003   31 Dec 2003
(All figures GBP000s)                                 Unaudited    Unaudited    Unaudited      Audited


  Cash at Bank and in Hand                                1,673          938        1,695          938
  Cash at Bank Accessible between 1 and 7 Days           13,879       20,800        9,000       20,800

  Total Cash and Bank                                    15,552       21,738       10,695       21,738

  Loans Due after more than One Year                    (2,308)      (2,451)      (2,714)      (2,451)
  Loans Due within One Year                               (446)        (531)        (439)        (531)
  HP/Finance Leases Due after more than One Year           (78)        (605)      (1,805)        (605)
  HP/Finance Leases Due within One Year                 (1,514)      (2,375)      (2,692)      (2,375)

  Total                                                  11,206       15,776        3,045       15,776



NOTES TO THE INTERIM RESULTS
          
1    ACCOUNTING POLICIES

Basis of preparation

The interim financial information has been prepared on the basis of the material
accounting policies set out in the 2003 Annual Report and Accounts.  The interim
financial information was approved by the Board of Directors and Audit Committee
on 17 August 2004.  The financial information set out above does not constitute
statutory accounts within the meaning of the Companies Act 1985.  Comparative
figures in the balance sheet for the year ended 31 December 2003 have been taken
from the Group's audited statutory accounts on which Deloitte & Touche LLP
expressed an unqualified opinion.   The results for the six months to 30 June
2004, 31 December 2003 and 30 June 2003 are unaudited.

The statement of interim results will be announced to all shareholders on the
London Stock Exchange and published on the Group's website on 18 August 2004.
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 accounting standards, which have been applied on a
consistent basis during the period under review.

Basis of consolidation

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

The acquisition of EPI Holdings Limited and IQE Inc (formerly Quantum Epitaxial
Designs Inc) by IQE plc, a new holding Company established for that purpose, on
16 May 1999 has been accounted for under merger accounting whereby the financial
information is disclosed as if the companies had always been part of the Group.
The acquisition of IQE (Europe) Limited (formerly Epitaxial Products
International Limited) and its subsidiary Epitaxial Products Inc by EPI Holdings
Limited, a new Company established for that purpose, on 27 March 1996 and the
acquisition of Wafer Technology International Limited and its subsidiary Wafer
Technology Limited on 22 November 2000 have been accounted for under acquisition
accounting, whereby these companies became part of the Group on the date of
acquisition.

Turnover

Turnover represents amounts invoiced, exclusive of value added tax.

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                                         5/10 years
Fixtures and fittings                                       4/5 years

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 acquisition
exceeds the values attributable to such net assets, the difference is treated as
purchased goodwill.   The goodwill arising on the acquisition of 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 (formerly Epitaxial Products International
Limited) and its subsidiary 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 classed as an
asset on the balance sheet and amortised over its useful life.    Goodwill
arising on the acquisition of Wafer Technology International Limited and its
subsidiary Wafer Technology Limited has been capitalised and has been fully
impaired.

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.

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 IQE 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.

Pension costs

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

Deferred tax 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 crystallise based on
current tax rates and law.    Timing differences arise from the inclusion of
items of income and expenditure in tax computations in periods different from
those in which they are included in the 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 recognised 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

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.

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 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.
                                           6 months to  6 months to  6 months to   12 months to
                                           30 Jun 2004  31 Dec 2003  30 Jun 2003    31 Dec 2003
2   EXCEPTIONAL COSTS                        Unaudited    Unaudited    Unaudited        Audited

    Exceptional items comprise GBP000s :

    Restructuring costs                            221          (6)          306            300
    Onerous lease provisions                         0          528            0            528

    Total exceptional costs                        221          522          306            828


                                           6 months to   6 months to   6 months to  12 months to
                                           30 Jun 2004   31 Dec 2003   30 Jun 2003   31 Dec 2003
3   EARNINGS PER SHARE                       Unaudited     Unaudited     Unaudited       Audited

    Retained Loss GBP000s :                    (5,507)       (6,872)       (6,768)      (13,640)

    Weighted Average Number of Ordinary
    Shares                                 315,401,383   207,631,857   187,943,616   207,631,857
    Diluted Share Options                    2,474,166     1,665,548       386,454     1,665,548
    Adjusted Weighted Average Number of
    Ordinary Shares                        317,875,549   209,297,405   188,330,070   209,297,405


    Basic Earnings Pence/Share                  (1.75)        (3.31)        (3.60)        (6.57)
    Diluted Earnings pence /Share               (1.75)        (3.31)        (3.60)        (6.57)


Basic earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares during
the period.  Diluted earnings 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

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 option 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 2004 which comprises the consolidated profit and
loss account, the statement of total recognised gains and losses and movement in
shareholders' funds, the consolidated balance sheet, the consolidated cash flow
statement, notes to the consolidated cash flow statement and related notes 1 to
3.  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.

This report is made solely to the Company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board.  Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the Company for our review work, for this report, or for the conclusions we have
formed.

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
polices and presentation applied to the interim figures are 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 2004.

Deloitte & Touche LLP
Chartered Accountants
Cardiff

17 August 2004

Notes: A review does not provide assurance on the maintenance and integrity of
the website, including controls used to achieve this, and in particular on
whether any changes may have occurred to the financial information since first
published.  These matters are the responsibility of the Directors but no control
procedures can provide absolute assurance in this area.

Legislation in the United Kingdom governing the preparation and dissemination of
financial information differs from legislation in other jurisdictions.


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