IQE's Trading Update

26 Jan 2005

IQE plc (“IQE”, “the Company”), a leading supplier of advanced semiconductor materials, is pleased to provide a trading update, following a number of significant developments during the latter part of 2004, where substantial progress was made in a number of key areas of the Group’s activities.

Wireless markets

In the US, a major outsource agreement to supply a leading RF wireless component manufacturer with virtually all of its wafer requirements was concluded during the fourth quarter, resulting in that particular customer closing down its in house wafer manufacturing activity in favour of outsourcing both its production and development needs to IQE Inc.  Volume shipments to this customer began in the last few weeks of the year and are continuing, with increasing requirements expected during the course of 2005. This, together with qualifications with leading Asian wireless component manufacturers due to conclude in the first half of 2005,  and increasing requirements from existing customers in the US,  lead us to expect a significant upturn in business during 2005, enabling full profitability of this unit to be achieved by the end of the first half. 

In addition, the Company’s US subsidiary, IQE Inc has several other outsource and development opportunities under discussion and has recently received a Certified Supplier Award from a major U.S. Government contractor, for the manufacture of RF components.  Achieving this status qualifies IQE to supply epitaxial wafers for use in significant production volumes of RF devices for next-generation applications taking place over the next several years starting in 2005.

Optoelectronic markets

The Group has continued to develop its product and customer base in consumer products, such as DVD, CD, industrial applications, Vertical Cavity lasers for printing, high resolution copying, short distance communications and optical sensing, High Brightness LEDs and Telecoms related products. The market for optical storage components weakened somewhat during the fourth quarter, and High Brightness LED markets were flat, but this was offset by strengthening markets in telecoms and products for industrial applications. The Group has successfully completed a number of new product qualifications which should result in new revenue streams for the Group as IQE’s customers bring these to market.

Silicon Markets

Our Silicon business received device results during the fourth quarter from a leading IC manufacturer on IQE’s proprietary ‘UltraSmooth’ strained silicon product that showed a very significant increase in speed due to the better surface quality of IQE’s product compared with other strained silicon products.  The materials are also under device evaluation by several other leading companies, and are being used to develop next generation strained silicon on insulator products. As a result of IQE Silicon’s growing reputation for advanced product development, two further customer-funded development contracts have been received both of which commence in early 2005. Standard silicon epi products are expected to show consistent growth based on customer forecasts.

Dr Drew Nelson, CEO, commented; “the Group enters 2005 having made substantial progress in the last months of 2004. The Group expects to report revenues for 2004 of not less than £15.3 million, which, although below our previous expectations, primarily due to a weak third quarter and adverse exchange rates, have still resulted in us achieving our expectations for EBITDA and cash levels. A number of positive developments, including the winning of a major outsource contract worth around $25m over the next two years, enabled the Group to exit 2004 with its largest order book for two years, and an exit revenue run rate which will deliver growing revenues in 2005. We believe we have sufficient capacity and resources within the Group to deliver improved shareholder returns in the current year and beyond.”

Contacts:

IQE plc
tel: +44 (0) 29 2083 9400

Drew Nelson

Stuart Hall

Chris Meadows