3rd Quarter & 9 Mths Results

IQE PLC
14 November 2001



FOR IMMEDIATE RELEASE                                     14 NOVEMBER 2001

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION INTO THE UNITED STATES OF
AMERICA, CANADA, AUSTRALIA OR JAPAN.

                                   IQE plc

                  3rd Quarter and Nine Months Results, 2001

IQE plc (IQE), the world's leading global outsource supplier of customised
epitaxial wafers to the semi-conductor industry, is pleased to announce its
3rd Quarter and Nine Months Results for the period ended 30 September 2001.

Highlights

-          Q3 sales at £8.234m, 28% higher than the third quarter of the prior
year (Q3/2000: £6.431m) although 37% less than the previous quarter

-          Sales for the nine months up by 75% to £34.351m (2000: £19.639m)

-          Q3 operating loss before goodwill amortisation and operating
exceptional items at £2.228m, compared with a small profit in the same period
in 2000 (Q3/2000: £0.380m). Significantly increased R&D spend of £1.602m (Q2/
2001: £0.757m) in support of important new development programs.

-          Operating profit for the nine months before goodwill and
exceptionals at £0.328m (2000: £1.167m)

-          Operating cash outflow for Q3 held to £1.230m, and capital
expenditure reduced to £3.475m compared to £8.844 m in the previous quarter.

-          Continued good progress at IQE Silicon Compounds including the
successful completion of customer qualification programs, receipt of the first
pilot production orders and excellent feedback on SiGe products

-          Significant success in new product developments, particularly with
long wavelength VCSELs, Avalanche Photodiodes and InP HBTs

-          Agreements were reached yesterday with Motorola after the quarter
end on the commercial basis for exploitation of their revolutionary GaAs on
silicon technology which have resulted in IQE becoming the development partner
and first licensee with exclusive supply arrangements for a range of wafer
products.   In addition, Motorola will make an equity investment in IQE of
$10m and will be granted warrants to subscribe for a further $10m of shares.
(See separate announcements).

-          Announcement of a Placing and Open Offer to existing shareholders
to support commercialisation of the new technology, plus arrangement of an
Equity Draw Down Facility for £14m.  (See separate announcements).

-          Commenting on the results, Dr Drew Nelson, Executive Chairman, said
....... ' As previously indicated, the Group was unable to obtain sufficient
new development contracts in the quarter to fully compensate for the loss of
production volumes caused by the dramatic downturn in the key opto-electronic
markets in which the Group operates. However, sales were still 28% higher than
the corresponding period in the previous year.  Following the end of the
quarter, we concluded our commercial negotiations with Motorola for the
revolutionary new GaAs on silicon technology which opens the way for IQE to
aggressively market this technology and start to generate development revenues
in 2002.  The deal with Motorola has exceptional potential, giving IQE a
substantial period of exclusivity for certain products and attracting a
significant equity investment from Motorola which underpins their belief in
the importance of this new technology. '

For further information please contact:

Drew Nelson, Executive Chairman, IQE plc                     (029)20-839405

Richard Clarke, Finance Director, IQE plc                    (029)20-839407
Tim Thompson/Nicola Cronk, Buchanan Communications           (0207)4-665000

There will be an analysts briefing today, 14 November, at 10.00 am at Buchanan
Communications, 107 Cheapside, London, EC2 followed by a press briefing at
11.30 am.  The Company will represented  by Drew Nelson,  Chief  Executive and
Richard Clarke, Finance Director.

This press release has been approved as an investment advertisement for the
purposes of section 57 of the Financial Services Act 1986 by Beeson Gregory
Limited. Beeson Gregory Limited, which is regulated by The Securities and
Futures Authority Limited, is acting for IQE plc and no-one else in connection
with the matters referred to in this press release and will not be responsible
to anyone other than IQE plc for providing the protections afforded to
customers of Beeson Gregory Limited or for providing advice in relation to the
matters referred to in this press release.

3rd QUARTER RESULTS

INTRODUCTION

The Group's two principal markets both remained depressed throughout the third
quarter, which was also impacted by a further downturn in global markets due
to world events. In the opto-electronics market, many of the Group's key
customers continued to announce worsening sales and profitability as well as
further headcount reductions, while the electronics sector had yet to show any
real signs of recovery, although that has now begun to happen in Q4.
However, despite these being the worst market conditions ever faced by the
semiconductor industry, IQE was able to show a year on year increase in sales
of 28% and limit losses at the EBITDA level to only £0.547 million, resulting
in a small net cash outflow from operations of £1.230 million.   The Group has
continued to assemble its production capabilities and resource to remain the
largest pure play compound semi-conductor wafer manufacturer in the world and
to take advantage of the eventual recovery in its key markets.

RESULTS

As anticipated, the dramatic reduction in production volumes of
opto-electronic products in Q3 could not be fully offset by new development
programs and accordingly sales at £8.234 million were limited to an increase
of 28% year on year (Q3/2000: £6.431 million), although down sequentially from
the previous quarter by 37%.  Sales for the nine months to September were 75%
higher than the previous year at £34.351 million (2000: £19.639 million).
The improvement in turnover in the nine months resulted from bringing on line
new reactors installed in the second half of the previous year, as well as a
full nine months contribution from Wafer Technology and the initial sales from
IQE Silicon Compounds.   Gross margins in Q3 were much lower than the previous
quarter at 15.8% (Q2/2001: 31.0%) mainly due to capacity utilisation issues in
the UK and US III-V operations caused by the weak opto-electronic and
electronic marketplaces during the quarter. At the same time, Wafer Technology
continued to be adversely affected by high gallium prices, although these have
now fallen back to historic levels.


In-house research and development effort was increased in Q3 to £1.602
million, representing 19.5% of sales (Q2/2001: £0.757 million, 5.8% of sales),
to support increased development activity particularly in the areas of new
products such as InP HBTs, long wavelength VCSELs, GaInP HBTs, Avalanche
Photodiodes (APDs) and GaAs on silicon technology, all of which was expensed
in the quarter. Total research and development costs for the nine months
amounted to £2.898 million (2000: £1.412 million), which was equivalent to
8.4% of sales (2000: 7.2% of sales). Sustained efforts to control costs meant
that SG&A expenses continued to reduce to £1.928 million (Q2/2001: £2.027
million), although increasing as a percentage of sales to 23.4% (Q2/2001:
15.4%).


As a consequence of the foregoing, the operating loss for the quarter before
goodwill amortisation and operating exceptional items was £2.228 million,
compared with a small profit in the corresponding period in 2000 (Q3/2000: £
0.380 million) and a profit in the previous quarter of £1.292 million.
Cumulative operating profit for the nine months before goodwill and
exceptionals at £0.328 million was 72% lower than the first nine months of the
prior year (2000: £1.167 million). This represents an operating margin of 1.0%
as against 5.9% for the same period last year. After crediting net interest
income of £0.320 million (2000: £0.619 million) and charging operating
exceptional items of £0.506 million (2000: £0.180 million) and goodwill
amortisation relating to the Wafer Technology acquisition of £1.363 million
(2000: Nil), the Group operating result before tax was a loss of £1.221
million (2000: profit of £1.606 million). The after tax loss was £1.173
million (2000: profit of £1.126 million) and basic loss per share was 0.72
pence (2000: earnings per share of 0.79 pence).  Excluding goodwill
amortisation, earnings per share were 0.12 pence.

Excluding capital expenditure, the Group incurred an operating cash outflow
for the nine months of £2.550 million (2000: inflow of £5.836 million). A
positive cash flow in the first quarter was eroded by working capital
increases in the second quarter, in particular a short term increase in raw
material stocks caused by the market slowdown, and further exacerbated by the
operating losses incurred in Q3. Capital expenditure reduced substantially in
Q3 to £3.475 million (Q2/2001: £8.844 million) following the completion of the
initial investment programme for IQE Silicon Compounds. A considerable portion
of this related to equipment required for the GaAs on silicon development.
Total capital expenditure for the year to date amounts to £22.386 million
(2000: £19.007 million), bringing the net cash outflow for the nine months
before financing to £24.578 million (2000: £12.586 million). Ongoing capital
expenditure will decline significantly in Q4 and beyond.

OPERATIONS

Overall, during Q3, new development contracts at IQE (Europe) were not
sufficient to offset the dramatic decline in production orders from
opto-electronic manufacturers, who are currently suffering from a significant
inventory backlog.  However, major progress was made in new product
developments for next generation systems, particularly in long wavelength
1.3um VCSELs, where successful devices have now been demonstrated, and in
advanced detectors (APDs) where a new product has been launched with world
class device results.  The HBT product from IQE (Europe) has also met with
significant success and is being qualified by a number of manufacturers
worldwide.

In the wireless marketplace, the Company is now seeing definite signs of
improvement to trading conditions, with some significant production orders now
being agreed with customers.  In addition, new product development continues
to be successful, particularly with InP HBTs which are now designed into
several new customer products.  Strong work continues on supporting the
revolutionary new GaAs on silicon technology, as further detailed in today's
announcements.

Wafer Technology continues to perform well on specialist wafer products,
although their more mature business has also suffered as a consequence of the
very difficult market conditions.  Margins were adversely impacted in Q3 due
to high metal prices but these are now well under control.  Overall, Wafer
Technology is outperforming its competitors in the marketplace and business
has held up reasonably well.

IQE Silicon Compounds has now signed up a further 5 Non Disclosure Agreements
making 32 in total and has run qualification wafers for 16 customers.  The
initial qualifications are now completing and the company recently received
its first production orders from large European IC manufacturers.  Progress
continues to be very positive with excellent feedback on the new SiGe products
and the successful completion of further qualification programs will lead to
accelerating production over the next few quarters.

Overall, the current trading environment continues to be extremely
challenging, particularly in the opto-electronics sector.  Continued weakness
in this area is being offset to an extent by the improving environment in the
wireless sector and the success of IQE Silicon compounds in winning production
orders.  Consequently, in order to conserve cash, the Group has taken a number
of cost control initiatives that are anticipated to help it to re-establish
profitability in the coming quarters whilst maintaining critical production
capability, resource and infrastructure in place to ensure the business is
properly positioned to exploit its medium term potential.

Notwithstanding the current difficult marketplace, IQE has clearly established
a clear leadership position as the pre-eminent global epiwafer supplier into
the semi-conductor industry, as evidenced by Motorola's selection of IQE to
further develop and commercialise what is potentially the most exciting
discovery within the semi-conductor field for many years.

The agreements with Motorola relating to the commercialisation of GaAs on
silicon, coupled with the increasing trend toward outsourcing within the
semi-conductor industry, offer powerful opportunities for the future.   Your
Board believes that as the semi-conductor industry recovers, IQE is strongly
positioned to build further upon its position as the leading outsource wafer
supplier within the compound semi-conductor industry.

Dr Drew Nelson
Executive Chairman
IQE plc


ACCOUNTS
FOR 9 MONTHS TO SEPTEMBER 2001
                           3 months  3 months  9 months       9 months       12
                                 to        to        to                  months
                                                                    to       to
PROFIT AND LOSS ACCOUNT      30 Sep    30 Sep    30 Sep    30 Sep note   31 Dec
                               2001      2000      2001      2000          2000
(All figures GBP000s)     unaudited unaudited unaudited unaudited       audited


Turnover                      8,234     6,431    34,351    19,639        30,117
Cost of Sales               (6,932)   (4,130)  (24,585)  (12,959)      (19,785)

Gross Profit                  1,302     2,300     9,766     6,680        10,332
Gross Profit %                 15.8      35.8      28.4      34.0          34.3

S G and A Costs
  Research/Development      (1,602)     (289)   (2,898)   (1,412)       (1,870)
  Selling/General/          (1,928)   (1,631)   (6,540)   (4,101)       (6,392)
  Administration

Operating Profit/(Loss)
before Goodwill/
Exceptionals                (2,228)       380       328     1,167         2,070
Operating Profit/(Loss) %
before Goodwill/
Exceptionals                 (27.1)       5.9       1.0       5.9           6.9

Goodwill Written off          (452)         0   (1,363)       (0)    2    (209)
Exceptional Items             (233)      (57)     (506)     (180)    3     (75)

Operating Profit/(Loss)
after Goodwill/
Exceptionals                (2,913)       323   (1,541)       987         1,786
Operating Profit/(Loss) %
after Goodwill/
Exceptionals                 (35.4)       5.0     (4.5)       5.0           5.9

Interest Received/(Paid)       (98)       494       320       619         1,208

Net Profit/(Loss) before    (3,011)       817   (1,221)     1,606         2,994
Taxes
Net Profit/(Loss) %          (36.6)      12.7     (3.6)       8.2           9.9

Current Taxes                   635     (243)       315     (480)            75
Deferred Taxes                    0         0     (267)       (0)       (1,259)
Dividends                         0         0       (0)       (0)             0

Net Profit/(Loss) after     (2,375)       574   (1,173)     1,126         1,810
Taxes


Basic Earnings Pence/        (1.45)      0.40    (0.72)      0.79          1.24
Share
Basic Earnings Pence/        (1.17)      0.40      0.12      0.79          1.38
Share excl Goodwill
Diluted Earnings Pence/      (1.41)      0.38    (0.70)      0.75          1.18
Share
Diluted Earnings Pence/      (1.14)      0.38      0.11      0.75          1.32
Share excl Goodwill

Net Profit/(Loss) before Interest/
Taxes/
Depreciation and              (547)       884     4,791     2,808         4,832
Amortization (EBITDA)

                                            As At       As At             As At
BALANCE SHEET                         30 Sep 2001 30 Sep 2000  note 31 Dec 2000
(All figures GBP000s)                   unaudited   unaudited           audited


Fixed Assets
    Intangible Fixed Assets                35,018           0     4      36,543
    Tangible Fixed Assets                  72,246      29,408            47,847
    Total Fixed Assets                    107,264      29,408            84,390

Current Assets
    Stocks                                 13,858       4,954             7,885
    Debtors                                10,554       9,948             9,952
    Cash and Bank                          13,513      62,502            39,512
    Total Current Assets                   37,926      77,404            57,349

Creditors Falling Due within One Year    (15,274)    (12,432)          (17,046)

Net Current Assets                         22,652      64,972            40,303

Total Assets less Current Liabilities     129,916      94,380           124,693

Creditors Falling Due after One Year
    Deferred Income                          (51)        (75)              (69)
    Deferred Tax Liability                (1,857)       (331)           (1,590)
    Long Term Borrowings                 (11,959)     (3,626)           (5,438)

Net Assets                                116,048      90,348           117,596


Capital and Reserves
    Called Up Share Capital                 1,644       1,545             1,633
    Merger Reserve                          (605)       (605)             (605)
    Share Premium Account                 111,882      86,102           111,802
    Shares to be Issued                       575           0               988
    Retained Earnings                       1,917       2,407             3,090
    Other Reserves                            635         900               688

Total Equity Shareholders' Funds          116,048      90,348           117,596

The financial statements were approved by
the Directors of IQE plc on 13 November 2001

      JL COVENTRY
      Company Secretary





                                3 months  3 months  9 months  9 months       12
                                      to        to        to        to   months

                                                                             to
CASH FLOW STATEMENT               30 Sep    30 Sep    30 Sep    30 Sep   31 Dec
                                    2001      2000      2001      2000
                                                                           2000
(All figures GBP000s)          unaudited unaudited unaudited unaudited  audited


Net Inflow/(Outflow) from        (1,230)     2,053   (2,550)     5,836   10,949
Operations

Returns on Investment and
Servicing Finance

   Interest Received/(Paid)         (98)       494       320       619    1,208

Capital Expenditures
   Purchases of Fixed Assets     (3,475)  (10,757)  (22,386)  (19,007) (33,566)
   less HP
   Intangible Fixed Assets             0         0     (250)         0 (13,968)

Equity Dividends Paid                  0         0         0         0        0

Taxes Refunded/(Paid)              (102)       (6)       289      (34)    (144)

Net Inflow/(Outflow) before      (4,905)   (8,215)  (24,578)  (12,586) (35,521)
Financing

Financing
   Issues of Ordinary Share           11    23,615        91    67,379   67,356
   Capital
   Loans Received/(Repaid)       (1,299)     (257)   (1,512)     (408)    (441)

Net Inflow/(Outflow) from        (1,288)    23,358   (1,421)    66,971   66,915
Financing

Increase/(Decrease) in Cash
and
Bank Overdrafts                  (6,194)    15,143  (25,999)    54,385   31,394


RECONCILIATION OF PROFIT TO CASH INFLOW FROM OPERATIONS

                               3 months  3 months  9 months  9 months 12 months
                                     to        to        to        to        to
                                 30 Sep    30 Sep    30 Sep    30 Sep    31 Dec
                                   2001      2000      2001      2000      2000
(All figures GBP000s)         unaudited unaudited unaudited unaudited   audited


Operating Profit after
Goodwill/Exceptionals           (2,913)       323   (1,541)       987     1,786
                                

Depreciation                      2,137       561     4,970     1,821     2,839
Goodwill                            452         0     1,363         0       209
(Gain)/Loss on Sale of Fixed
Assets                                0         0         0         0        29
(Increase)/Decrease in Stocks     (976)   (1,236)   (5,973)   (2,381)   (4,013)
(Increase)/Decrease in            3,180   (1,297)     (603)   (2,206)   (1,157)
Debtors
Increase/(Decrease) in          (3,104)     3,708     (748)     7,633    11,280
Creditors
Grants Released                     (6)       (6)      (18)      (18)      (24)
Grants Received                       0         0         0         0         0

Net Cash Inflow/(Outflow)
from Operations                 (1,230)     2,053   (2,550)     5,836    10,949
                                

RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS

                               3 months  3 months  9 months  9 months 12 months
                                     to        to        to        to        to
                                 30 Sep    30 Sep    30 Sep    30 Sep    31 Dec
                                   2001      2000      2001      2000      2000
(All figures GBP000s)         unaudited unaudited unaudited unaudited   audited


Increase/(Decrease) in Cash     (6,193)    15,143  (25,999)    54,385    31,394

Loans (Received)/Repaid           1,299       257     1,512       408       441

Change in Funds Resulting
from Cash Flows                 (4,894)    15,400  (24,487)    54,793    31,835

New Finance Leases              (2,850)         0   (6,772)       (0)   (2,590)

Net Movement                    (7,744)    15,400  (31,259)    54,793    29,245
Net Funds at Start                9,298    42,964    32,813     3,571     3,571
Exchange Differences                  0         0         0         0       (3)

Net Funds at Close                1,554    58,364     1,554    58,364    32,813

Analysis of Net Funds
   Cash and Bank                 13,513    62,502    13,513    62,502    39,512
   Debt Due after One Year      (7,126)   (3,626)   (7,126)   (3,626)   (3,527)
   Debt Due within One Year           0     (494)         0     (494)     (508)
   HP Creditors/Finance         (4,833)      (18)   (4,833)      (18)   (2,664)
   Leases

   Total                          1,554    58,364     1,554    58,364    32,813



RECONCILIATION OF UKGAAP    3 months to  3 months  9 months  9 months 12 months
TO IAS                                         to        to        to        to
                            30 Sep 2001
                                           30 Sep    30 Sep    30 Sep    31 Dec
                                             2000      2001      2000      2000
(All figures GBP000s)         unaudited unaudited unaudited unaudited   audited


(1) Statement of Cash Flows
The following shows 
the statement of cash flows 
as if they had been 
presented under IAS

Cash Inflow/(Outflow) from
Operations                      (1,332)     2,047   (2,261)     5,802    10,805
                                
Cash Inflow/(Outflow) from
Investing                       (3,572)  (10,262)  (22,316)  (18,388)  (46,326)
                                
Cash Inflow/(Outflow) from
Financing                       (1,288)    23,358   (1,421)    66,971    66,915
                                
Net Increase/(Decrease) in
Cash
and Cash Equivalents            (6,193)    15,143  (25,998)    54,385    31,394

Opening Cash and Cash
Equivalents per IAS              19,706    47,359    39,512     8,117     8,117
                                 
Exchange Difference                   0         0         0         0         0

Closing Cash and Cash
Equivalents per IAS              13,513    62,502    13,514    62,502    39,511
                                 
(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                    255       574       574     1,126     1,810
Dividends                             0         0         0         0         0
Retained Profit/(Loss) per          255       574       574     1,126     1,810
UK GAAP
Goodwill Amortization              (14)      (14)      (43)      (43)      (57)

Retained Profit/(Loss) per          240       560       532     1,084     1,753
IAS

Equity Shareholders' Funds
per UK GAAP                     116,048    90,348   116,048    90,348   117,596
Goodwill Capitalization at          284       284       284       284       284
Cost

Accumulated Goodwill              (256)     (199)     (256)     (199)     (213)
Amortization

Equity Shareholders' Funds      116,076    90,433   116,076    90,433   117,667
per IAS

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


Freehold buildingss                                                     25 year
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 as noted in 4 (below)

*      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                                            2,001  2,000

       Exceptional items comprise:

       Provision for national insurance contributions on share    (£51K)  £180K
       options
       Legal fees                                                  £557K    £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      INTANGIBLE FIXED ASSETS

        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      CONTINGENT LIABILITY

        There is a contingent liability covering further legal costs in
respect of  the actions between IQE (Europe) and Rockwell (see note 3 above).
The Directors estimate that legal fees of up to an additional £300K may be
incurred in the fourth quarter of the year.