Final Results - Part 1

IQE PLC
21 March 2001
                     

PART 1
                        21 MARCH 2001


                            IQE plc
            Quarter Four and Full Year 2000 Results
                               
               Record Sales, Profits and Orders
                               
IQE  plc  (IQE),  the  world's leading outsource  supplier  of
custom  epi wafers to the compound semiconductor industry,  is
pleased  to  announce its Q4 results for the period  ended  31
December 2000 and for the full year 2000.

Highlights

*  Q4 2000 sales more than doubled to £10.478m compared with
   same  quarter  last  year (Q4, 1999 :  £5.068m)  and  a  63%
   sequential increase over Q3 2000.

*  Full year sales up by 58% to £30.117m (1999: £19.043m)

*  Q4  pre-tax profits (excl goodwill) at a record £1.597m,  up
   sixfold compared with same period in prior year (Q4  1999  :
   £0.266m).

*  Full year pre-tax profits before goodwill and exceptionals
   up by 168% to £3.203m (1999: £1.193m)

*  Strong  cash  flow from operations with EBITDA  in  Q4  of
   £2.024m (Q4 1999: £0.789m)

*  Continued strong demand for Group's products

*  Record  order intake during quarter of £12.300m, backlog
   at year end £24.4m (1999: £6.34m)

*  Significant additional epiwafer capacity brought on line
   during quarter

*  WaferTechnology subsidiary performing well  -  synergies
   already being realised.

*  IQE  Silicon  Compounds  ahead of  schedule,  cleanrooms
   completed and reactors delivered by year end

*  Excellent progress on new product development

Dr   Drew   Nelson,   Executive  Chairman   commented...   'As
anticipated   in   our  Q3  statement,  our   Q4   performance
demonstrated  rapidly accelerating growth with Q4  sales  more
than  doubled compared with the same period last year and  pre
tax profits up sixfold.  This was a direct result of increased
reactor capacity coming online and continued strong demand for
the  Group's products, notably in materials for optoelectronic
applications.   We   have  also  made   good   progress   with
WaferTechnology, the acquisition completed in Q4, and  in  the
launch of our new subsidiary IQE Silicon Compounds, which  has
generated strong customer interest. Several new products  have
been  successfully developed and the senior management of  the
Group  strengthened  by the recruitment  of  key  personnel  .
Overall,  the first year of our LSE listing has  been  one  of
major   achievements  for  IQE  and  with   sustained   demand
continuing  in the first quarter of 2001, we remain  confident
of the future.'

For further information please contact:
Drew  Nelson, Executive Chairman, IQE plc
                                              (029) 20 839405
Richard  Clarke, Finance Director, IQE plc    (029) 20 839400
Tim Thomson/Nicky Cronk, Buchanan Communications
                                             [phone]
IQE plc

RESULTS FOR Q4 2000 AND FULL YEAR TO 31 DECEMBER 2000

Introduction

Against  the  backdrop  of  the current  state  of  technology
markets  which  have seen dramatic falls in confidence  during
the second half of 2000, particularly in the last quarter, and
with  many  technology businesses reporting reduced sales  and
substantially  revising their 2001 forecasts downward,   I  am
very  pleased  to  report  that IQE had  its  most  successful
quarter  ever in Q4 2000, with record levels of sales, profits
and  orders. This capped a year of great progress for the  IQE
Group,  and  with growth continuing during Q1 of  the  current
year, we remain optimistic for the future.

As  previously  indicated at the time of the  Q3  results,  we
expected to bring on significantly increased capacity  as  our
investment  programme  over the last year  began  to  come  to
fruition.  In fact we exceeded our predictions and brought  on
capacity  more quickly than anticipated, resulting in  a  very
stong  growth  in revenues during the quarter.  Including  the
contribution from Wafer Technology, acquired towards  the  end
of the quarter, our total revenues for Q4 grew by 107% year on
year  and 63% sequentially to  a record  £10.478million. On  a
like for like basis, Q4 revenues were up by more than 85% year
on year, and up over 48% sequentially from Q3 2000.  Full year
revenues  for 2000, at over £30million, were over  58%  up  on
1999  full  year revenues. This revenue growth was accompanied
by  a  strong increase in profitability, with pre tax  profits
(excluding goodwill) increasing sharply to £1.597 million  for
Q4,  a six fold increase on the same period last year and full
year  pre  tax  and  pre exceptional profits  up  by  168%  to
£3.202million, from £1.193m in 1999.

Two  major  corporate announcements were made during  Q4.  The
acquisition of WaferTechnology International Ltd,  which  both
ensures  the Group's ability to source its key raw  materials,
and  provides  additional market channels for  our  epi  wafer
products,  has  progressed smoothly, and the establishment  of
IQE   Silicon  Compounds  to  provide  sophisticated   epitaxy
services to the Silicon industry has seen exceptionally strong
customer interest and is progressing ahead of schedule.

Our  order intake has continued to increase, with a Q4  intake
of £12.300m, representing a book to bill ratio of 1.17, and  a
full year order intake of more than £41.4m.


Results for Q4 and Full Year to 31 December 2000


Fourth  Quarter  sales  reached their highest  ever  level  of
£10.478m, an increase of 107% over Q4-1999 (£5.068m) and  were
up  sequentially  by  63%  compared  with  Q3  2000  revenues.
Turnover increased strongly, as predicted in the Q3 statement,
as  a  direct result of additional reactor capacity coming  on
line in both the UK and in the US. Gross margin was maintained
at  35%  despite the additional costs associated with bringing
further reactors into production, resulting in a record  gross
profit of


£3.652m  (Q4  1999:  £1.773m).  Operating profit  was  also  a
record at £1.008m, up by 220% compared with Q4 1999 (£0.315m),
even  though  SG&A costs associated with acceleration  of  our
expansion  plans  were increased, and higher  R&D  costs  were
incurred.   Pre  tax  profits  before  goodwill  increased  by
sixfold  to  £1.597m  (Q4 1999: £0.266m).   Post  tax  profits
excluding  goodwill increased to £0.893m (1999 : £0.476m)  and
pre  goodwill  earnings  were 0.55 pence  per  share  for  the
quarter  compared with 0.35 pence per share for the equivalent
quarter  in 1999. Including goodwill, EPS were 0.42 pence  per
share.


Sales  for the full year were at a record £30.117m, up by  58%
compared  with  1999 (£19.043m), In spite  of  the  additional
financial  burden of introducing new reactors into production,
the  gross margin was maintained at 34% resulting in  a  gross
profit  of  £10.332m, up by 59% compared with 1999  (£6.485m).
SG&A  increased to £6.392m   (1999: £3.729m) as  a  result  of
significant  recruitment, particularly in senior level  staff,
infrastructure  improvements, and added  sales  and  marketing
activity.  R&D increased more slowly, from £1.302m in 1999  to
£1.870m  in  2000, representing  6.2 % of turnover,  primarily
because  most resources were devoted to production, especially
in  the  first three quarters. Consequently, operating profits
increased to £1.995m (1999: £1.283m) representing an  increase
of  55%. Pre-tax profits, excluding goodwill and exceptionals,
increased  by 168% to £3.203 from £1.193m in 1999.   Excluding
goodwill,  post tax profits were more than doubled  to  £2,019
(1999 : £0.842m) an increase of 139% on the previous year, The
tax  charge for the year was 39.5%, driven by the distribution
of  profits within the Group and the current capital structure
of  the  US subsidiaries, resulting in unrelievable tax losses
in  the US.  However, as these losses are available for  carry
forward, the Group expects to receive a tax benefit in  future
years

Earnings for the year, excluding goodwill, were 1.38 pence per
share,  up by 119% compared with the prior year (1999  :  0.63
pence per share). Including goodwill, EPS were 1.24 pence  per
share.

Overview

The  fourth  quarter of 2000 saw another period of significant
activity for the Group, with a number of notable achievements.

Several   new   reactors   were  successfully   brought   into
production, allowing the Group to substantially increase wafer
output to satisfy growing demand for the Group's products.  In
the  UK, four new MOCVD reactors were brought on line  and  in
the   US,  two  new  MBE  reactors  contributed  to  increased
production output.  In addition, delivery of other systems  on
order  continued  according to plan.  We  were  successful  in
transferring  a  number  of existing products  to  the  larger
capacity platforms, allowing much more flexibility in catering
for  customer's diverse needs and facilitating the realisation
of  significantly enhanced productivity.  As a consequence  we
were  also  able  to  devote  more  resource  to  new  product
development.   This has resulted in bringing a number  of  new
and  exciting  products close to market, particularly  in  the
areas of Vertical Cavity Surface Emitting

Lasers  (VCSELs),  which  are  highly  versatile  devices  and
crucial  for a number of rapidly growing applications such  as
high  speed  Gigabit Ethernet systems.  IQE has a very  strong
position   and   long   history  in  VCSEL   development   and
manufacture, and has now successfully developed structures  at
a  variety  of  different wavelengths, thereby increasing  the
range   of  applications  that  can  be  addressed   by   this
technology.   We  have also developed a  range  of  InP  based
electronic    products,   essential   for   next    generation
communication  systems which require even faster  devices  and
integrated  circuits.  Not only have industry leading  results
been  achieved using conventional InP substrates but  we  have
now also been successful in developing this technology on GaAs
substrates, allowing these advanced devices to be manufactured
on  6' GaAs wafers.  Our customers have reported World leading
results using our technology, which has subsequently been  the
subject of a highly significant technology press release.

The  acquisition of WaferTechnology has progressed well,  with
additional capacity being added for substrate production,  and
new  routes  into  the marketplace for epiwafer  supply  being
exploited.  There has also been rapid progress made at our new
subsidiary,  IQE  Silicon Compounds, with  completion  of  the
cleanrooms  and delivery of the first reactors being  achieved
before   the  year  end,  significantly  ahead  of   schedule.
Customer interest in the epi services to be offered   by  this
unit  has  continued at a very high level and initial customer
qualifications are due to begin ahead of our initial estimate.

Order  activity continued at a high level with more than £12.3
million received during the quarter, resulting in a backlog at
the  year  end of over £24 million for the Group. Overall  the
book  to  bill ratio for the Group was 1.17 during the  fourth
quarter. Total order intake for 2000 was a record £41.1m.

Capital  expenditure, including equipment leasing and deposits
on  new  equipment in the quarter was £16.380m , in line  with
our revised plans which were significantly accelerated to cope
with   customer   demands   for  additional   production   and
development activity.

We  have continued to strengthen the management team with  the
addition  a  number  of key appointments,  including  that  of
Richard  Clarke (CFO, IQE plc) who was previously  with  Dowty
Group  and Avimo, Steve Byars (CEO, Europe) previously CEO  of
ESM,  Europes  largest  Silicon  outsource  foundry,  and  Ren
Jenkins  (Director of North American Sales),  previously  with
Lucent.

The  Group also produced strong operational cash inflow during
Q4, of £4.379     million, (1999: £(4.036)m outflow), with  an
EBITDA   of    £2.024  m,  representing  19.3%  of   turnover.
Consequently,  we enter the year 2001 with a  healthy  balance
sheet, with net assets of £117.6m, including cash at year  end
of £39.5m and debt of only £6.699m.


Trading Prospects

Although  there  have been areas of well documented  weakness,
such as in the wireless handset marketplace, our products  and
services overall continue to be in strong demand, particularly
in  opto-electronics,  with demand  remaining  strong  in  the
materials  for  Dense Wavelength Division Multiplexing  (DWDM)
optical fibre systems for long haul and metro networks,  short
haul  optical  fibre  links and optical  storage  systems,  in
addition to the electronic materials required to support  such
systems.

The  current strength of our business may at first sight  seem
at odds with the gloomy short term outlook for high technology
markets but IQE s strategy has always been to develop a broad
product  portfolio to ensure a lack of dependence on  any  one
sector of the industry. Secondly, our outsource business model
is attractive to many Companies for two reasons - the first is
that  as  an  outsource  epiwafer foundry,  our  services  are
particularly  attractive  during recessionary  times  as  many
Companies  are  loath to invest heavily in  capital  at  this
point  of  the  cycle, but still require  materials  for  both
production and development, and in addition our broad  product
range  enables companies to quickly change their  own  product
mix to address more rapidly growing markets.

Overall, therefore our business is continuing to grow  and  we
confidently expect first quarter revenues and profits to  show
sequential  growth  compared with Q4 2000. Given  the  current
market  turmoil, it is difficult to be absolutely  certain  of
predicting when a general turnaround in confidence will occur,
but  with a strong product range, a powerful manufacturing and
development capability, a robust business model and  a  strong
balance  sheet,  we  remain  cautiously  optimistic  for   the
remainder of this year, and highly confident of our long  term
prospects.

Dr Drew Nelson
Chairman&CEO
IQE plc
                               
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