Year end trading update

28 January 2009

Strong trading performance in 2008 despite global economic crisis; cost base realigned to protect margins in 2009

28 January 2009. IQE plc (AIM: IQE, “IQE” or the “Group”) the leading global supplier of advanced semiconductor wafer products and wafer services to the semiconductor industry, is pleased to provide a trading update for the year ended 31 December 2008, based on unaudited management results.
Despite the severe global economic downturn in the second half of 2008, IQE expects to report full-year 2008 results in line with long-standing market expectations, with revenues of approximately £60m, up 20% on 2007, and EBITDA* of approximately £8.4m, more than double that of 2007.
IQE expects to report a strong conversion of EBITDA into cash flow from operations, reflecting a minimal absorption of cash into working capital despite the continued growth in the business. Furthermore, the Group expects to deliver a positive free cash flow* even after funding the final phase of a major investment programme to commission spare capacity, the relocation of the Singapore business and the investment in the development of new product lines such as solar cells and ultra efficient light-emitting diodes (LEDs). Following the completion of this capital programme, the investment in infrastructure in 2009 is expected to be minimal. This is expected to result in a significant improvement in free cash generation in 2009.
IQE has proactively cut costs to meet the current and future challenging market conditions. Following a strong third quarter of 2008, the global economic upheaval affected IQE’s business during the fourth quarter, with a dramatic inventory reduction occurring throughout the supply chains of IQE’s major customer base. To ensure that the cost base remained aligned with underlying levels of activity and to protect margins, the Group cut its fixed cost base, in part by consolidating and restructuring some operations.
This restructuring resulted in exceptional costs of £1.2m, in addition to the £2.4m previously indicated. The latter relates to the successful relocation of the Singapore facility to a state-of-the-art clean room complex which was completed in September 2008 on time and within budget. Approximately half of the £1.2m of the restructuring costs are non-cash items relating to asset write-downs. Overall exceptional charges for 2008 are expected to be around £3.6m with the restructuring completed by the end of December 2008.
The combination of cost reductions and investment in infrastructure, coupled with the development of an exciting range of new products, has positioned IQE strongly to respond rapidly to improvements in demand as and when they arise in its end markets.
Although the inventory reductions are expected to continue through the first quarter of 2009, the Group sees indications that the markets will begin to pick up during the second quarter as inventories stabilise and customer pulls return to actual consumption levels.
During 2009 as a whole, the smartphone/3G wireless market, which has been the major driver for the Group’s revenue increases over the last three years, is expected to be broadly similar in volume to 2008. However, the Group expects to bring additional products to market during 2009 to serve rapidly expanding markets for utility-scale solar power generation and high-performance LEDs, driven by the increasing global focus on energy efficient devices and systems.
The Group expects to publish its preliminary results in the week commencing 22 March 2009.
Dr Drew Nelson, Group President & CEO said:
“Despite huge economic uncertainty and the impact of the global financial crisis in the second half of 2008, IQE expects to deliver results in line with expectations that were set long before the downturn began to affect the industry.
“Our focus on reducing costs and investing in infrastructure and new product innovation has positioned IQE strongly to benefit from any upturn in the semiconductor market and the global emphasis on energy efficiency. We were strongly cash generative in 2008 and expect free cash generation to improve significantly in 2009 now that our infrastructure investment programme has been completed.”

*Stated before exceptional items and the non-cash share option charge

Contacts:

IQE plc (+44 29 2083 9400) Drew Nelson Phil Rasmussen Chris Meadows
Noble & Company Limited (+44 20 7763 2200) John Llewellyn-Lloyd Sam Reynolds
College Hill (+44 20 7457 2020) Adrian Duffield Carl Franklin

Note to Editors
IQE is the leading global supplier of advanced semiconductor wafers with products that cover a diverse range of applications, supported by an innovative outsourced foundry services portfolio that allows the Group to provide a 'one stop shop' for the wafer needs of the world's leading semiconductor manufacturers.
IQE uses advanced crystal growth technology (epitaxy) to manufacture and supply bespoke semiconductor wafers ('epi-wafers') to the major chip manufacturing companies, who then use these wafers to make the chips which form the key components of virtually all high technology systems. IQE is unique in being able to supply wafers using all of the leading crystal growth technology platforms.
IQE's products are found in many leading-edge consumer, communication, computing and industrial applications, including a complete range of wafer products for the wireless industry, such as mobile handsets and wireless infrastructure, Wi-Fi, WiMAX, base stations, GPS, and satellite communications; optical communications, optical storage (CD, DVD), laser optical mouse, laser printers & photocopiers, thermal imagers, leading-edge medical products, barcode, high efficiency LEDs and a variety of advanced silicon based systems.
The manufacturers of these chips are increasingly seeking to outsource wafer production to specialist foundries such as IQE in order to reduce overall wafer costs and accelerate time to market.
IQE also provides bespoke R&D services to deliver customised materials for specific applications and offers specialist technical staff to manufacture to specification either at its own facilities or on the customer's own sites. The Group is also able to leverage its global purchasing volumes to reduce the cost of raw materials. In this way IQE's outsourced services, provide compelling benefits in terms of flexibility and predictability of cost, thereby significantly reducing operating risk.
IQE operates six manufacturing facilities located in Cardiff (two) and Milton Keynes in the UK; in Bethlehem, Pennsylvania and Somerset, New Jersey in the USA; and Singapore. The Group also has 11 sales offices located in major economic centres worldwide.