1st Quarter Results

IQE PLC
23 May 2001

                                                          23 MAY 2001



                       IQE plc

   1st Quarter 2001 Results : Continued Record Sales and Operating Profits



IQE plc (IQE), the world's largest 'pure play' outsource supplier of
customised epitaxial wafers to the compound semiconductor industry, is pleased
to announce its 1st Quarter results for the period ended 31 March 2001.



Highlights



-  Record Q1 sales at £12.959 m, more than double the first quarter of
   the prior year (Q1/2000: £6.351 m) and 23.7% higher than the previous        
   quarter.



-  Operating profit before goodwill amortisation at a record £ 1.264 m,
   over three times higher than the same period in 2000 (Q1/2000: £ 0.384 m) and
   25.4% up compared with Q4/2000.



-  Earnings per share, excluding goodwill amortisation, reached a
   record 0.64 pence, up almost fourfold compared with prior year (Q1/2000: 0.17
   pence) and up 16% compared with prior quarter (Q4/2000 : 0.55 pence)



-  Positive net cash flow from operations with EBITDA of  £2.591m, up
   170% compared with prior year (Q1/ 2000: £0.958 m) and up 28% compared with
   prior quarter (Q4/2000 : £2.024m).



-  Initial sales achieved by IQE Silicon Compounds and continued strong
   customer interest.



-  Wafer Technology integrating well into the Group, with market and
   technology synergies being realised.



-  Significant progress on new product development.



Commenting on the results, Dr Drew Nelson, Executive Chairman, said....... '
Despite difficult trading conditions in a number of markets, IQE was able to
achieve continued strong growth in the first quarter of 2001, demonstrating
the advantages of having a broad product base and the attractiveness to our
customers of the outsourcing model for the supply of customised epitaxial
wafers. The progress at IQE Silicon Compounds was particularly pleasing, with
the company achieving its first production sales in the period and market
interest continuing to show rapid growth.'



For further information please contact:
Drew Nelson, Executive Chairman, IQE plc             (029) 20 839405

Richard Clarke, Finance Director, IQE plc            (029) 20 839407

Tim Thomson/Nicky Cronk, Buchanan Communications     [phone]






1ST QUARTER 2001 RESULTS



INTRODUCTION



The first quarter of 2001 has been characterised by increased levels of
uncertainty in many of the markets in which the Group operates with the
optoelectronic segment being affected as well as the electronic sector. This
has considerably reduced the degree of forward visibility for the remainder of
the year.  However,  despite these uncertainties, I am once again pleased to
report that IQE has delivered record quarterly sales and operating earnings
(before goodwill).



RESULTS



Q1 sales reached their highest ever quarterly level of £12.959 million which
was more than double the level achieved in the first quarter of the prior year
(Q1/2000: £6.351 million) and 23.7% higher than the previous quarter (Q4/2000:
£10.478 million). The improvement in turnover resulted from bringing on line
new reactors installed in the previous quarter as well as a full quarter's
contribution from Wafer Technology and the maiden production sales from IQE
Silicon Compounds. Gross margins, at 33.9%, were slightly lower than the
previous quarter (Q4/2000: 34.9%) due to the costs associated with bringing
new reactors on line, capacity utilisation issues in the US operation caused
by the downturn in the wireless market and the fact that the initial sales out
of IQE Silicon Compounds were at a lower than average gross margin.



Research and development effort increased significantly in the quarter
although some £0.25 million of cost relating to specific projects for
customers (APD and VCSEL developments) has been carried forward to be
amortised against the related future product sales. This represents a
modification to the Group's declared accounting policy of writing off all
research and development expenditure when incurred. Excluding the amounts
carried forward, total research and development costs in the quarter amounted
to £0.539 million (Q4/2000: £0.457 million), which was equivalent to 4.2% of
sales (Q4/2000: 4.4% of sales). S G & A costs at £2.585 million (Q4/2000: £
2.291 million) continued to reduce as a percentage of sales to 19.9% (Q4/2000:
21.9%).



Operating profit for the quarter, pre-goodwill amortisation, was a record 
£1.264 million, more than three times higher than the corresponding period in
2000 (Q1/2000: £0.384 million) and 25.4% up compared with the previous quarter
(Q4/2000: £1.008 million). This represents an operating margin of 9.8% as
against only 6.1% in the first quarter of last year and 9.6% in the preceding
quarter. After crediting net interest income of £0.295 million (Q1/2000:
interest expense of £0.049 million) and a full quarter's goodwill amortisation
relating to the Wafer Technology acquisition of £0.459 million (Q1/2000: Nil),
Group profit before tax was £1.1 million (Q1/2000: £0.335 million). Profit
after tax was £ 0.581 million (Q1/2000: £0.231 million) and basic earnings per
share were 0.36 pence (Q1/2000: 0.17 pence).  Excluding goodwill amortisation,
earnings per share were 0.64 pence.



The Group once again delivered a positive net cash flow from operations of 
£1.367 million (Q1/2000: net outflow of £0.131 million), although capital
expenditure remained high at £11.125 million (Q1/2000: £3.824 million)
resulting in a net cash outflow before financing of £9.294 million (Q1/2000: 
£4.024 million).




OPERATIONS



Overall the III-V epiwafer operations produced a strong result in the quarter
with the UK facility generating an exceptional performance as additional MOVPE
equipment was successfully brought on line. This more than offset weak
capacity utilisation in the US due to the softness in the wireless electronics
market. In response to the continued growth in the optoelectronics market, the
first of three planned MOVPE reactors has now been received in the Bethlehem
US plant and installation and testing will continue during Q2 .



Significant progress was made in the area of new product development, in
particular 980 and 1300 nm laser VCSEL structures, indium phosphide HBT's and
metamorphic structures for both HEMT's and HBT's.  The metamorphic structures
in particular have major attractions to the large electronic component
producers who have now switched to 6' wafer processing since 6' Indium
Phosphide wafers are not yet available.



A major milestone was achieved in the silicon epitaxy business in the quarter,
with IQE Silicon Compounds making its first production sales. Investment in
the new facility is proceeding according to plan, with the third and fourth
reactors now also  delivered. The fifth reactor is due for delivery toward the
end of Q2. Customer interest in this new business continues to exceed
expectations and has shown no signs of softness. In light of this strong
interest, the Group is continuing to invest heavily in this area.



Wafer Technology also performed well, showing significantly increased sales
compared to the prior year period and  synergies between the Group companies
are being realised as customers appreciate the attractiveness of IQE's broad
based materials portfolio.



MANAGEMENT



As previously reported, Richard Clarke, joined IQE in the quarter as Chief
Financial Officer, from Singapore listed Avimo Group where he was Group
Finance Director. This appointment completes the head office management team
and there were no other senior management changes in the quarter. The Group
continues to search for additional non-executive directors.



TRADING PROSPECTS



Although there have recently been some signs that the excess component
inventories in the wireless market may now be close to working their way
through the system, we have yet to see any significant upturn in orders on the
wireless component side of the business.  However, we do anticipate increasing
order coverage moving through Q3 and Q4. In the meantime a number of major
optoelectronic companies have indicated that they are experiencing a downturn
in business and requests for order rescheduling or delays are becoming more
common. Although we are reasonably confident of being able to continue to grow
trading volumes in Q2, albeit more slowly, visibility for the second half of
the year remains very limited. Consequently, as we indicated in the previous
quarterly statement , we remain cautiously optimistic for the remainder of
2001 but continue to be highly confident of our longer term prospects.



Dr Drew Nelson
Chairman/CEO
IQE plc






IQE PLC

                                          3 months   3 months        12 months
PROFIT AND LOSS ACCOUNT                     31 Mar     31 Mar  note     31 Dec
                                              2001       2000             2000
(All figures GBP000s)                    unaudited  unaudited          audited


Sales                                       12,959      6,351           30,117
Cost of Sales                              (8,571)    (4,312)         (19,785)

Gross Profit                                 4,388      2,039           10,332
Gross Profit %                                33.9       32.1             34.3

S G and A Costs
      Research/Development                   (539)      (545)          (1,870)
      Selling/General/Admin                (2,585)    (1,073)          (6,392)
      Selling/General/Admin Exceptional        (0)       (36)     2       (75)

Operating Profit/(Loss) before Goodwill      1,264        384            1,995
Operating Profit/(Loss) %                      9.8        6.1              6.6

Interest
      Interest Received/(Paid)                 295       (49)            1,208
      Interest Received/(Paid)                 (0)        (0)                0
      Exceptional
Goodwill written off                         (459)        (0)            (209)

Net Profit/(Loss) before Taxes/              1,100        335            2,994
Exceptionals
Net Profit/(Loss) %                            8.5        5.3              9.9

Current Taxes                                (519)      (104)     3         75
Deferred Taxes                                 (0)        (0)     3    (1,259)
Dividends                                      (0)        (0)                0

Net Profit/(Loss) after Taxes/                 581        231            1,810
Exceptionals



Basic Earnings Pence/Share                    0.36       0.17             1.24
Basic Earnings Pence/Share excl               0.64       0.17             1.38
Goodwill
Diluted Earnings Pence/Share                  0.34       0.16     5       1.18
Diluted Earnings Pence/Share excl             0.60       0.16     5       1.32
Goodwill

Net Profit/(Loss) before Interest/Taxes/
Depreciation and Amortization (EBITDA)       2,591        958            4,832






                                           As At       As At             As At
BALANCE SHEET                        31 Mar 2001 31 Mar 2000  note 31 Dec 2000
(All figures GBP000s)                  unaudited   unaudited           audited


Fixed Assets
      Intangible Fixed Assets             36,334           0     4      36,543
      Tangible Fixed Assets               58,198      14,759            47,847
      Total Fixed Assets                  94,531      14,759            84,390

Current Assets
      Stocks                              10,283       3,058             7,885
      Debtors                             12,890       9,029            10,312
      Cash and Bank                       31,223       3,932            39,512
      Total Current Assets                54,396      16,019            57,709

Creditors Falling Due within One        (21,970)     (5,345)          (17,406)
Year

Net Current Assets                        32,426      10,674            40,303

Total Assets less Current                126,957      25,433           124,693
Liabilities

Creditors Falling Due after One Year
      Deferred Income                       (63)        (87)              (69)
      Deferred Tax Liability             (1,590)       (331)           (1,590)
      Long Term Borrowings               (6,325)     (3,840)           (5,438)

Net Assets                               118,978      21,176           117,596


Capital and Reserves
      Called Up Share Capital              1,635       1,366             1,633
      Merger Reserve                       (605)       (605)             (605)
      Share Premium Account              111,854      18,916           111,802
      Shares to be Issued                    988           0               988
      Retained Earnings                    3,671       1,511             3,090
      Other Reserves                       1,436        (12)               688

Total Equity Shareholders' Funds         118,978      21,176           117,596






                                          3 Months   3 Months        12 Months
CASH FLOW STATEMENT                         31 Mar     31 Mar  note     31 Dec
                                              2001       2000             2000

(All figures GBP000s)                    unaudited  unaudited          audited


Net Inflow/(Outflow) from Operations         1,397      (131)           10,949

Returns on Investment and Servicing
Finance
      Interest Received/(Paid)                 295       (49)            1,208

Capital Expenditures
      Purchases of Fixed Assets           (11,125)    (3,824)         (33,566)
      Intangible Fixed Assets                (250)          0         (13,968)

Equity Dividends Paid                            0          0                0

Taxes Refunded/(Paid)                          389       (20)            (144)

Net Inflow/(Outflow) before Financing      (9,295)    (4,024)         (35,521)

Financing
      Issues of Ordinary Share Capital          53         15           67,356
      Loans Received/(Repaid)                  953      (175)            (441)

Net Inflow/(Outflow) from Financing          1,005      (160)           66,915


Increase/(Decrease) in Cash and
Bank Overdrafts                            (8,289)    (4,184)           31,394







RECONCILIATION OF PROFIT TO              3 Months   3 Months        12 Months
CASH INFLOW FROM OPERATIONS                31 Mar     31 Mar  note     31 Dec
                                             2001       2000             2000

(All figures GBP000s)                   unaudited  unaudited          audited


Operating Profit after Goodwill               805        384            1,786

Depreciation                                1,327        574            2,839
Goodwill                                      459          0              209
(Gain)/Loss on Sale of Fixed Assets             0          0               29
(Increase)/Decrease in Stocks             (2,398)      (485)          (4,013)
(Increase)/Decrease in Debtors            (2,578)    (1,287)          (1,157)
Increase/(Decrease) in Creditors            3,787        689           11,280
Grants Released                               (6)        (6)             (24)
Grants Received                                 0          0                0

Net Cash Inflow/(Outflow) from              1,397      (131)           10,949
Operations


RECONCILIATION OF NET CASH FLOW          3 Months   3 Months        12 Months
TO MOVEMENT IN NET FUNDS                   31 Mar     31 Mar  note     31 Dec
                                             2001       2000             2000

(All figures GBP000s)                   unaudited  unaudited          audited


Increase/(Decrease) in Cash               (8,289)    (4,184)           31,394

Loans (Received)/Repaid                     (953)        175              441

Change in Funds Resulting from Cash       (9,242)    (4,009)           31,835
Flows

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

Net Movement                              (9,242)    (4,009)           29,245
Net Funds at Start                         32,813      3,571            3,571
Exchange Differences                         (90)        (1)              (3)

Net Funds at Close                         23,481      (439)           32,813

Analysis of Net Funds
      Cash and Bank                        31,223      3,932           39,512
      Debt Due after One Year             (3,804)    (3,765)          (3,527)
      Debt Due within One Year              (574)      (513)            (508)
      HP Creditors/Finance Leases         (3,365)       (93)          (2,664)

      Total                                23,481      (439)           32,813






                                          3 Months   3 Months        12 Months
RECONCILIATION OF UKGAAP TO IAS             31 Mar     31 Mar  note     31 Dec
                                              2001       2000             2000
(All figures GBP000s)                    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        1,786      (151)           10,805
Cash Inflow/(Outflow) from Investing      (11,080)    (3,873)         (46,326)
Cash Inflow/(Outflow) from Financing         1,005      (160)           66,915

Net Increase/(Decrease) in Cash
and Cash Equivalents                       (8,288)    (4,184)           31,394

Opening Cash and Cash Equivalents per       39,512      8,117            8,117
IAS
Exchange Difference                              0          0                0

Closing Cash and Cash Equivalents per       31,224      3,933           39,511
IAS




(2) Goodwill



Goodwill of £284,000 arose on acquisition of IQE (Europe) by EPIH on 27 March
1996.
Under UK GAAP, this has been written off directly to reserves.     Under IAS,
however, goodwill arising on acquisition should be recognized as an asset and
amortized over its useful life.    The following shows the retained profit and
total net assets as if they had been prepared under IAS with goodwill
amortized over 5 years.



Profit/(Loss) after Taxes and Exceptionals       581     231             1,810
Dividends                                          0       0                 0
Retained Profit/(Loss) per UK GAAP               581     231             1,810
Goodwill Amortization                           (14)    (14)              (57)

Retained Profit/(Loss) per IAS                   567     217             1,753


Equity Shareholders' Funds per UK GAAP       118,978  21,176           117,596
Goodwill Capitalization at Cost                  284     284               284
Accumulated Goodwill Amortization              (227)   (170)             (213)

Equity Shareholders' Funds per IAS           119,035  21,289           117,667





NOTES TO THE ACCOUNTS



1.   BASIS OF PREPARATION



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



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



Turnover represents amounts invoiced exclusive of value added taxation.



Tangible fixed assets are stated at cost less accumulated depreciation.   Cost
comprises all costs that are directly attributable to bringing the asset into
working condition for its intended use, as defined by Financial Reporting
Standard Number 15.    Depreciation has been calculated so as to write down
the cost of assets to their residual values over the following estimated
useful economic lives :


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



No depreciation is provided on land or assets in the course of construction.



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.



On the acquisition of a business, fair values are attributed to the Group's
share of the net tangible assets acquired.    Where the cost of the
acquisition exceeds the values attributable to such net assets, the difference
is treated as purchased goodwill.    The goodwill arising on the acquisition
of IQE (Europe) Limited (formerly Epitaxial Products International Limited)
and its subsidiary Epitaxial Products Inc by EPI Holdings Limited was written
off directly to reserves in the year of acquisition.   Goodwill of £284,000
remains eliminated in the profit and loss reserve and will be charged to the
profit and loss account on the subsequent disposal of IQE (Europe) Limited and
Epitaxial Products Inc. Following the issue of Financial Reporting Standard
10, goodwill arising in accounting periods ending on or after 23 December 1998
must be classified as an asset on the balance sheet and amortized over its
useful life



The goodwill arising on the acquisition of Wafer Technology International
Limited and its subsidiary Wafer Technology Limited has been capitalized and
is being amortized over its useful life, which is considered by the Directors
to be 20 years.



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



Research and development expenditure is fully written off when incurred except
as noted in 5 (below)  Transactions in foreign currencies during the period
are recorded in sterling at the rates ruling at the dates o the transactions.
  Monetary assets and liabilities in foreign currencies are translated into
sterling at the rates ruling at the balance sheet date.   All exchange
differences are taken to the profit and loss account.



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



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



Deferred taxation is provided on timing differences, arising from the
different treatment of items for accounting and taxation purposes, which are
expected to reverse in the future without replacement, calculated at the rates
at which it is expected that will arise.



Government grants receivable in connection with expenditure on tangible fixed
assets are accounted for as  deferred income, which is credited to the profit
and loss account by instalments over the expected useful  economic life of the
related assets on a basis consistent with the depreciation policy.



Revenue grants for the reimbursement of costs incurred are deducted from the
costs to which they related, in the period in which the costs are incurred.



Assets held under finance leases and hire purchase contracts are capitalized
at their fair value on the 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.   EXCEPTIONAL ITEMS



Exceptional items comprise :


Provision for national insurance contributions on share      £0K        (£36K)
options



3.   TAXATION



The high taxation charge is due to tax losses available for carry forward
within the Group which cannot be recognized as deferred tax assets under UK
GAAP.



4.   INTANGIBLE FIXED ASSETS



100% of the issued share capital of Wafer Technology Limited and Wafer
Technology International Limited was acquired on 22 November 2000 for a
consideration of £41,301K.   This has been accounted for using the acquisition
method of accounting.



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



5.   SHARE OPTIONS



Outstanding share options at 31 March 2001 were :9,336,694      (10,383,320)