1st Quarter Results

IQE PLC
22 May 2002

FOR IMMEDIATE RELEASE                             22 MAY 2002



                                    IQE plc

                            1st QUARTER RESULTS 2002

IQE plc (IQE), the leading global outsource supplier of customised epitaxial
wafers to the semiconductor industry, is pleased to announce its 1st Quarter
Results for the period ended 31 March 2002.

Key Points

-          Q1 sales at £5.680 m, 26% less than the previous quarter and 56%
           lower than the first quarter of 2001 (Q1/2001: £12.959 m).

-          Q1 operating loss before goodwill amortisation and operating
           exceptional items at £4.977 m, compared with a loss of £3.795 m in 
           the previous quarter and a profit in the first quarter of 2001 
           (Q1/2001: £1.264 m).

-          Q1 operating cash outflow held to £3.248 m, 28% less than the
           previous quarter due to strong cash flow management and despite 
           higher operating losses.

-          Q1 capital expenditure reduced to £1.366 m, compared to £2.784 m in
           the previous quarter and £11.125 m in the first quarter of 2001.

-          Q1 additional funding of £2.897 m raised as a result of the exercise
           of the over-allotment option associated with the successful Placing 
           and Open Offer of November 2001.

-          Strategic partnership established between IQE Silicon Compounds and
           AmberWave Systems Inc for the high volume manufacture of epiwafers 
           based on their proprietary (epsilon)MOS TM strained silicon 
           technology. The first batch of test wafers was produced in Q1 and is 
           currently undergoing performance evaluation. A number of other 
           customer qualification programmes were successfully completed 
           resulting in the receipt of pilot production orders, including for 
           SiGe products.

-          Continued success in new product developments particularly with
           Indium Phosphide HBTs. Subsequent to the quarter end IQE was able to 
           announce that the University of California at Santa Barbara (UCSB) 
           had achieved a record-breaking 450GHz HBT device using wafers 
           produced by the MBE process at IQE Inc.

-          Commenting on the results, Dr Drew Nelson, President and CEO, said...
.... 'Although the markets in which we operate weakened still further in the
quarter and trading remained very difficult, we were able to successfully
conserve our cash resources and strengthen our position as a technology leader
in our industry. This is clearly demonstrated by the strategic partnership with
AmberWave Systems Inc., on strained silicon technology and the record-breaking
results achieved with our InP HBT material. Our balance sheet remains strong and
we are continuing to keep a tight control on costs. We have continued to develop
a product portfolio which addresses a much wider end-user market than
previously, and we believe IQE is well placed to consolidate its position as the
world's leading global outsource supplier of customised epitaxial wafers as the
market returns across the various semiconductor sectors.   We are now beginning
to see some improvements in trading and, in line with previous guidance, expect
H1 to be the bottom of the current downturn for us'




For further information please contact:

Drew Nelson, President and CEO, IQE plc                           (029)20-839400

Richard Clarke, Finance Director, IQE plc                         (029)20-839400
Tim Thompson/Nicola Cronk, Buchanan Communications                (020)74-665000

INTRODUCTION

Q1 2002 proved to be an extremely difficult trading period as we had indicated
in our full year results announcement. There were initially some indications of
recovery in the wireless electronics market in Q4 2001, but this was not
sustained in Q1 2002 as the first quarter is traditionally weak in this market
sector. There was also further deterioration in the opto-electronics market
where the component manufacturers, who are the Company's main customers in this
sector, continued to be impacted by low levels of capital expenditure by end
users.   In addition to very low production volumes, new product development
programmes have also been scaled back or delayed.  However, there have been some
encouraging increases in order intake in the UK and US epiwafer operations since
the end of the quarter, and we expect H1 to represent the bottom of the current
downturn for the Group.

RESULTS

Q1 sales were £5.680 m, 26% less than the preceding quarter and 56% lower than
the first quarter of the previous year (Q1/2001: £12.959 m) in line with
previous guidance. This was as a result of continued very low production volumes
of opto-electronic products in Q1 combined with a marked further slowdown in
customer funded new development programmes and some contract slippage into Q2.
The market for indium phosphide substrates at Wafer Technology remained
extremely weak, although partially offset by some recovery in the demand for
lower margin gallium arsenide LED substrates and sustained orders for antimonide
substrates. The high level of operational gearing, particularly in the UK and US
III-V operations, meant that gross margins deteriorated further in Q1 to -21.4%
(Q4/2001: -1.3%) principally due to lower capacity utilisation. The US operation
continued to be affected by weaker sales margins and was adversely impacted by
higher than expected equipment maintenance costs. Overall margins at Wafer
Technology were lower due to the higher proportion of lower margin GaAs LED
substrates shipped in the quarter.

Q1 research and development costs were £1.142 m, representing a record 20.1% of
sales (Q4/2001: £0.894 m, 11.6% of sales), and were focussed on a range of new
products including InP HBTs. Since the quarter end, IQE has been able to
announce that the University of California at Santa Barbara (UCSB) had achieved
a record-breaking 450GHz HBT device using wafers produced by the MBE process at
IQE Inc. Other key areas of development included long wavelength VCSELs and
Avalanche Photodiodes (APDs), as well as the GaAs on Silicon technology in
partnership with Motorola and the strained silicon technology in conjunction
with AmberWave. All research and development expenditure was expensed in the
quarter as incurred. SG&A expenses at £2.620 m were lower than in the previous
quarter (Q4/2001: £2.800 m), which was impacted by increases in provisions for
doubtful debts, but remained at a high level largely due to high sales and
marketing costs.

As a result of the above, the Group incurred a Q1 operating loss before goodwill
amortisation and operating exceptional items of £4.977 m, compared with a loss
in the previous quarter of £3.795 m and a profit in the first quarter of 2001
(Q1/2001: £1.264 m). This represents an operating margin of -87.6% as against
9.8% for last year.  The operating loss before tax was £5.771 m (Q1/2001: profit
£1.100 m) after charging net interest costs of £0.012 m (Q1/2001: net interest
income £0.295 m) ; operating exceptional items of £0.345 m (Q1/2001: Nil) ; and
goodwill amortisation relating to the Wafer Technology acquisition of £0.437 m
(Q1/2001: £0.459 m).   No tax credit has been recognised as it is not the
Group's policy to recognise deferred tax assets, so the after tax loss was also
£5.771 m (Q1/2001: profit of £0.581 m) and the basic loss per share was 3.13
pence (Q1/2001: earnings per share of 0.36 pence).  Excluding goodwill
amortisation, the loss per share remains at 3.13 pence (Q1/2001: earnings per
share of 0.34 pence).

The Group incurred an operating cash outflow in Q1 of £3.248 m (Q1/2001: inflow
of £1.397 m) as a result of operating losses and a further reduction in
creditors, which more than offset continuing reductions in debtors and stocks.
The cash outflow was 28% less than the previous quarter (Q4/2001: outflow of
£4.516 m) despite increased operating losses.  Capital expenditure, which had
reduced substantially in the second half of 2001, was further reduced in Q1 to
only £1.366 m (Q1/2001: £11.125 m) and was less than half the previous quarter
(Q4/2001: £2.784 m). The net cash outflow for Q1 before financing was £4.626 m
(Q1/2001: £9.293 m). This reduced to £2.614 m as a result of the additional
funds raised in the quarter through the exercise of the over-allotment option
associated with the successful Placing and Open Offer in December last year.

OPERATIONS

The Group was adversely affected during Q1 by a combination of seasonal weakness
in the wireless markets; stretching of new development contracts and a further
decline in production orders from opto-electronic manufacturers, who continue to
suffer from low demand and excess inventories as end user capital expenditure
has continued to fall.  The headcount in the UK epiwafer operation was reduced
by 30 early in the quarter and other cost saving initiatives were introduced in
order to reduce costs and conserve cash. However, considerable progress was
again made in new product developments for next generation systems, particularly
in Indium Phosphide HBTs and APDs for next generation 40 Gbits/systems, InGaP
HBTs for wireless applications, strained silicon technology for high performance
ICs and Three Five on Silicon (TFOS) technology.

There were definite signs of improvement in trading conditions in the wireless
market in Q4 2001 with some significant production orders agreed with customers
but the upturn remained patchy in Q1, which is traditionally the weakest
quarter.   We have experienced a strengthening of this market since the end of
the quarter and clear signs of a pick up are now evident.

New product development activity continues to be successful, with the Group's
InP HBT wafers now designed into several new customer products and record
breaking results announced using IQE wafers. Further progress continues to be
made in development of the Three Five on Silicon Technology and the first early
adopter customers have now been signed up. Strong dialogue continues with
several other parties to identify the key products of major interest and benefit
to the customer base in order to effectively target the technology to maximum
effect.

Wafer Technology continues to perform well on specialist wafer products,
although their more mature business has suffered as a consequence of the very
difficult market conditions.  Q1 continued to see recovery in gallium arsenide
substrates, particularly for LED products, but this was more than offset by a
reduction in indium phosphide product which also had a negative margin impact.
Strong demand for antimonide products was experienced towards the end of the
quarter and a small degree of visibility is now becoming apparent.

There has continued to be strong progress at IQE Silicon Compounds. A number of
qualification programmes have now successfully completed and as a result the
company has been running pre-production orders for some large European IC
manufacturers.  Major progress was made with the signing of a strategic
partnership with AmberWave Systems Inc for high volume manufacture of epiwafers
based on their proprietary (epsilon)MOSTM strained silicon technology. Strained
silicon has been identified as a potentially powerful solution to overcome the
physical speed limitations presented by the material properties of elemental
silicon and offers the silicon industry immediate and cost effective access to
epiwafers that will increase speed and reduce power in conventional CMOS,
facilitating substantial advancements in digital, wireless and opto-electronic
applications. IQE SC became the first licensee of this technology and during the
quarter shipped a number of wafers for product qualification.

BOARD CHANGES

Following recent Board announcements which saw the appointments of Dr Godfrey
Ainsworth as Non Executive Chairman and Mr Simon Gibson OBE as Non Executive
Director, the Group intends to further strengthen its Board with the appointment
of two further Non Executive Directors.   The number of Executive Directors on
the main Board will also be substantially reduced in line with corporate
governance guidelines through the formation of a separate Executive Board of the
Company.

TRADING PROSPECTS

Since the end of the first quarter, we have begun to experience a pick up in
order activity, with a positive book to bill for the last 6 weeks, particularly
in the wireless sector.  We therefore re iterate our belief that H1 will most
likely represent the bottom of the current downturn for us and we should see
sequential increases in revenue and bottom line performance, particularly in the
second half of the year.

The Board continues to believe that as the semiconductor industry recovers,
together with the exceptionally exciting medium and longer term opportunities
open to the Group as a result of its agreements with AmberWave Systems Inc., and
Motorola and with outsourcing becoming a much more prominent part of the
compound semiconductor industry, IQE is well placed to consolidate its position
as the leading global outsource wafer manufacturer within the semiconductor
industry.

Dr Drew Nelson
President and Chief Executive Officer
IQE plc




PROFIT AND LOSS ACCOUNT
                                                               3 months    3 months     12 months 
                                                                     to          to            to
                                               Note              31 Mar      31 Mar        31 Dec 
                                                                   2002        2001          2001

(All figures GBP000s)                                         unaudited    unaudited      audited


Turnover                                                          5,680       12,959       42,047
Cost of Sales                                                   (6,895)      (8,571)     (32,381)

Gross Profit                                                    (1,215)        4,388        9,666
Gross Profit %                                                   (21.4)         33.9         23.0

S G and A Costs :
   Research/Development                                         (1,142)        (539)      (3,792)
   Selling/General/Administration                               (2,620)      (2,585)      (9,341)

Operating Profit/(Loss) before Goodwill/Exceptionals            (4,977)        1,264      (3,467)
Operating Profit/(Loss) % before Goodwill/Exceptionals           (87.6)          9.8        (8.2)

Goodwill Written off                             2                (437)        (459)      (1,835)
Exceptional Items                                3                (345)          (0)        (759)

Operating Profit/(Loss) after Goodwill/Exceptionals             (5,759)          805      (6,061)
Operating Profit/(Loss) % after Goodwill/Exceptionals           (101.4)          6.2       (14.4)

Interest Received/(Paid)                                           (12)          295          211

Net Profit/(Loss) before Taxes                                  (5,771)        1,100      (5,850)
Net Profit/(Loss) %                                             (101.6)          8.5       (13.9)

Current Taxes                                                       (0)        (519)        (103)
Deferred Taxes                                                      (0)          (0)          373
Dividends                                                           (0)          (0)          (0)

Net Profit/(Loss) after Taxes                                   (5,771)          581      (5,580)

Basic Earnings Pence/Share                                       (3.13)         0.36       (3.38)
Basic Earnings Pence/Share excl Goodwill                         (2.90)         0.64       (2.27)
Diluted Earnings Pence/Share                     5               (3.13)         0.34       (3.38)
Diluted Earnings Pence/Share excl Goodwill       5               (2.90)         0.60       (2.27)

Net Profit/(Loss) before Interest/Taxes/
Depreciation and Amortization (EBITDA)                          (3,396)        2,591        2,196




BALANCE SHEET



                                                         As At             As At              As At
                                                   31 Mar 2002       31 Mar 2001        31 Dec 2001

(All figures GBP000s)                                unaudited         unaudited            audited


Fixed Assets :
    Intangible Fixed Assets                             33,866            36,084             34,658
    Tangible Fixed Assets                               74,772            58,198             74,193
    Investment in Own Shares                                 3                 0                  3
    Capitalized Research and Development                     0               250                  0
    Total Fixed Assets                                 108,640            94,531            108,854

Current Assets :
    Stocks                                              10,644            10,283             12,277
    Debtors                                              6,589            12,890              7,495
    Cash and Bank                                       27,918            31,223             30,532
    Total Current Assets                                45,150            54,396             50,304

Creditors Falling Due within One Year                  (9,404)          (21,396)           (11,945)

Net Current Assets                                      35,746            33,000             38,359

Total Assets less Current Liabilities                  144,386           127,531            147,213

Creditors Falling Due after One Year :
    Deferred Income                                      (141)              (63)              (173)
    Deferred Tax Liability                             (1,215)           (1,590)            (1,217)
    Long Term Borrowings                               (7,773)           (6,899)            (8,211)

Net Assets                                             135,256           118,978            137,612


Capital and Reserves :
    Called Up Share Capital                              1,851             1,635              1,824
    Merger Reserve                                       (605)             (605)              (605)
    Share Premium Account                              140,162           111,854            136,661
    Shares to be Issued                                      0               988                938
    Retained Earnings                                  (8,261)             3,671            (2,490)
    Other Reserves                                       2,110             1,436              1,284

Total Equity Shareholders' Funds                       135,256           118,978            137,612





CASH FLOW STATEMENT


                                                   3 months to    3 months to        12 months to
                                                   31 Mar 2002    31 Mar 2001         31 Dec 2001

(All figures GBP000s)                                unaudited      unaudited             audited


Net Inflow/(Outflow) from Operations                   (3,248)          1,397             (7,066)

Returns on Investment and Servicing Finance :
    Interest Received/(Paid)                              (12)            295                 211

Capital Expenditures :
    Purchases of Fixed Assets less Leases              (1,366)       (11,125)            (25,169)
    Received
    Payments to Acquire Investments in                       0              0                   0
    Subsidiaries
    Capitalized Development Costs                          (0)          (250)                   0

Dividends Received/(Paid)                                    0              0                   0

Taxes Received/(Paid)                                        0            391                 322

Net Inflow/(Outflow) before Financing                  (4,626)        (9,293)            (31,702)

Financing :
    Issues of Ordinary Share Capital                     2,897             53              25,049
    Loans Received/(Repaid)                              (277)            975               (463)
    Leases (Repaid)                                      (609)           (24)             (1,863)

Net Inflow/(Outflow) from Financing                      2,011          1,004              22,723


Increase/(Decrease) in Cash and
Bank Overdrafts                                        (2,614)        (8,289)             (8,979)





RECONCILIATION OF PROFIT TO CASH
INFLOW/(OUTFLOW) FROM OPERATIONS
                                                     3 months to  3 months to  12 months to
                                                     31 Mar 2002  31 Mar 2001   31 Dec 2001

(All figures GBP000s)                                  unaudited    unaudited       audited


Operating Profit after Goodwill/Exceptionals             (5,759)          805       (6,061)

Depreciation Charged                                       1,926        1,327         6,422
Goodwill Written off                                         437          459         1,836
(Gain)/Loss on Sale of Fixed Assets                            0            0             0
(Increase)/Decrease in Stocks                              1,633      (2,398)       (4,392)
(Increase)/Decrease in Debtors                               906      (2,579)         2,882
Increase/(Decrease) in Creditors                         (2,359)        3,788       (7,857)
Grants Released                                             (32)          (6)         (504)
Grants Received                                                0            0           608

Net Cash Inflow/(Outflow) from Operations                (3,248)        1,397       (7,066)



RECONCILIATION OF NET CASH FLOW
TO MOVEMENT IN NET FUNDS
                                                     3 months to  3 months to  12 months to
                                                     31 Mar 2002  31 Mar 2001   31 Dec 2001

(All figures GBP000s)                                  unaudited    unaudited       audited


Increase/(Decrease) in Cash                              (2,614)      (8,289)       (8,979)

Loans (Received)/Repaid                                      277        (975)           463
Leases Repaid                                                609           24         1,863

Change in Funds Resulting from Cash Flows                (1,728)      (9,240)       (6,653)

New Finance Leases                                         (376)          (0)       (7,054)

Net Movement                                             (2,104)      (9,240)      (13,707)
Net Funds at Start                                        19,104       32,813        32,813
Exchange Differences                                           0         (92)           (2)

Net Funds at Close                                        17,000       23,481        19,104

Analysis of Net Funds :
    Cash and Bank                                         27,918       31,223        30,532
    Debt Due after One Year                              (2,640)      (3,804)       (2,899)
    Debt Due within One Year                               (656)        (574)         (674)
    HP Creditors/Finance Leases                          (7,622)      (3,364)       (7,855)

    Total                                                 17,000       23,481        19,104



RECONCILIATION OF UKGAAP TO IAS
                                                    3 months to  3 months to 12 months to
                                                    31 Mar 2002  31 Mar 2001  31 Dec 2001

(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                   (3,247)        1,788      (6,744)
Cash Inflow/(Outflow) from Investing                    (1,378)     (11,080)     (24,958)
Cash Inflow/(Outflow) from Financing                      2,011        1,004       22,723

Net Increase/(Decrease) in Cash
and Cash Equivalents                                    (2,614)      (8,289)      (8,979)

Opening Cash and Cash Equivalents per IAS                30,533       39,512       39,512
Exchange Difference                                           0            0            0

Closing Cash and Cash Equivalents per IAS                27,919       31,223       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 Exceptionals            (5,771)         581        (5,580)
Dividends                                                (0)          (0)            (0)
Retained Profit/(Loss) per UK GAAP                   (5,771)          581        (5,580)
Goodwill Amortization                                   (14)         (14)           (57)

Retained Profit/(Loss) per IAS                       (5,785)          567        (5,637)


Equity Shareholders' Funds per UK GAAP              135,256       118,978        137,612
Goodwill Capitalization at Cost                          284          284            284
Accumulated Goodwill Amortization                      (284)        (227)          (270)

Equity Shareholders' Funds per IAS                   135,256      119,035        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.

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, and are 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 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 tax 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 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 has been capitalized and is
being amortized over its useful life, which is considered by the Directors to be
20 years.


3    EXCEPTIONAL ITEMS
                                                              2002                   2001
Exceptional items comprise :

Legal fees                                                    £345K                  £0K



    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 outcome will be.

4 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 13, 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 year legal fees
totalling £345,000 in respect of defending this claim.   In the view of the
Directors, the Group may incur further legal costs of up to £700,000 in the year
ended 31 December 2002 should this legal action continue.

5   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.





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