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IQE Announces Major Agreements with Motorola to Commercialize Breakthrough Semiconductor Technology

Source: IQE

IQE Granted Licensing Agreements for Wafer Supply using Breakthrough Semiconductor Technology

Motorola to make equity investment of $10 million and be granted warrants to subscribe for $10 million, supported by £14,000,000 Equity Drawdown Facility to provide funding for exploitation of new Technology

Placing and Open Offer to existing shareholders to raise up to approximately £20 million,

INTRODUCTION IQE plc (LSE : IQE.L) the world s largest outsource manufacturer of specialist epitaxial wafers and services, today announced that it has signed a series of agreements with Motorola, including a licensing agreement for the manufacture of a breakthrough semiconductor Technology employing gallium arsenide on silicon substrates (the Technology), which includes a limited period of exclusivity for wafers up to 6 inches in diameter.

BACKGROUND IQE has for the past 12 months, been closely involved with Motorola Inc (NYSE : MOT) in Motorola s development of this new Technology that combines the best properties of workhorse silicon with the speed and optical capabilities of high-performance compound semiconductors known as III-V materials. IQE plans to begin supplying evaluation wafers, under a further agreement, to potential customers in the first half of 2002. This Evaluation Program is intended to accelerate the learning curve for the industry on this Breakthrough Technology. It will enable potential customers to assess the Technology and gather their own information as a pre-cursor to target new designs, re-map existing products and explore other new options. Under the Customer Evaluation Agreement, IQE will be allowed to enter into evaluation programmes with customers of IQE and Motorola. .

OPPORTUNITIES The new Technology is expected to open the door to significantly less expensive optical communications, high-frequency radio devices and high-speed microprocessor-based subsystems by potentially eliminating the current cost barriers holding back many advanced applications. For consumers, the Technology should result in smarter electronic products that cost less, perform better and have exciting new features. The Technology may change the economics and accelerate the development of new applications, such as broadband "fiber" cable to the home, streaming video to cell phones and automotive collision avoidance systems.

Until now, there has been no way to combine light-emitting semiconductors with silicon integrated circuits on a single chip, and the need to use discrete components has compromised the cost, size, speed and efficiency of high-speed communications equipment and devices.

"The implications for high-speed electronics in general and optoelectronics in particular are profound and far-reaching, for everything from cell phones to computers to optical networking equipment," said Richard Cunningham, Senior Analyst, Cahners In-Stat Group. Since the initial announcement in September 2001, Motorola Labs has continued to improve the Technology and, with IQE, the manufacturing processes, including the quality and uniformity of material across large wafers

"In light of the Motorola Labs discovery, we re busy rethinking everything we know about everything -- from ultra wide band links to the integration of optical sensing and processing to free space optics," said David J. Brady, Director of the Fitzpatrick Center for Photonics and Communication Systems and Professor of Electrical and Computer Engineering at Duke University.

The discovery also specifically impacts the semiconductor industry by its potential for:

  • increasing substrate size, reducing substrate cost and processing costs for III-V manufacturing;
  • integrating the superior electrical and optical performance of III-V semiconductors with mature silicon Technology to create a new industry based on Integrated Semiconductor Circuits;
  • extending the life of silicon and existing capital investments;
  • improving cost effectiveness for higher performance applications such as optical communications;
  • enabling larger scales of integration

    Motorola, who have filed more than 280 patent applications on inventions related to this new Technology, also announced today that it has created a wholly owned subsidiary, Thoughtbeam, Inc., to commercialize the compound semiconductor on silicon Technology. Thoughtbeam launches operations with a strong management team led by Padmasree Warrior, corporate vice president, Motorola Inc., as the general manager. Warrior was previously chief technology officer and director of the 1100 member central R&D organization for Motorola Semiconductor Products Sector.

    "This Breakthrough Semiconductor Technology has the potential to benefit multiple industries, from semiconductors to communications to optoelectronics, and we plan to license it broadly," said Warrior. "The next step is to ensure that a supply of GaAs on silicon wafers is made available to potential customers for their internal evaluation. So, in addition to the commercial license, we have also now authorized IQE to produce and supply GaAs on silicon evaluation wafers for our Evaluation Program."

    Initially, IQE will manufacture GaAs on silicon wafers for customer evaluation purposes before rolling out to full scale manufacturing.

    "We have been working with IQE for nearly a year now, and we are impressed with their capabilities and market strength. We are excited to expand our relationship," said Warrior.

    The two Companies have also entered into a separate Services and Cooperation Agreement through which Motorola will purchase development services from IQE.

    "We are delighted that an established global force such as Motorola with its strong history in innovative technologies has chosen to partner so closely with IQE." Said Dr Drew Nelson, Chairman and CEO of IQE. "I believe the move endorses our outsourcing business model whilst recognizing our unparalleled expertise in compound semiconductor materials development and manufacturing fields. We look forward to a continued and expanded relationship with Motorola."

    EQUITY INVESTMENTS In order to support IQE s efforts to commercialize the Technology and subject to customary regulatory and other approvals, Motorola has committed to subscribe for 4,428,620 new Ordinary Shares at a price of 155p per share, representing an aggregate subscription of $10 million. In addition, Motorola will be granted warrants at the subscription price to subscribe a further $10 million over the next 5 years. The warrant price, subject to certain conditions, will escalate at a maximum of 5% per annum.

    In order to secure the investment from Motorola and to ensure funding is available to rapidly exploit opportunities presented by the licensing agreements, a £14 Million equity drawdown facility has been set up with two institutional investors ("The Equity Providers"). The Equity Providers will make available to the Company an equity draw down facility of up to £14,000,000. This, subject to certain restrictions, can be drawn down at the Company s discretion by the Company issuing Ordinary Shares to the Equity Providers in return for funds over the next 3 years. The price to be paid by the Equity Providers for the new Ordinary Shares to be issued will be 93 per cent of a price calculated over a period of time following notice of exercise of the Company s drawdown option.

    In addition, the Equity Providers will be granted 2,000,000 share warrants entitling them to subscribe in whole or in part at any time during the period of 3 years from the date of Completion. The price for the Equity Providers share warrants will be 178.25p per warrant share.

    In conjunction with the conditional agreements referred to above, the Company proposes to raise up to approximately £20,000,000 by means of an Open Offer of 13,152,247 new Ordinary Shares at 155p per share (the same price per share as Motorola). Under the terms of the Open Offer, Qualifying Shareholders may subscribe for Offer Shares on the basis of 2 new Ordinary Shares for every 25 Ordinary Shares held at close of business on the Record Date. Any offer shares not taken up by Qualifying Shareholders may be placed by Beeson Gregory, as agent for the Company, for the benefit of the Company at the Placing Price. The Open Offer has been arranged in order to allow existing shareholders of IQE to participate in these exciting developments without being greatly diluted by the raising of the additional financing. The Directors of IQE do not anticipate having to use the equity drawdown facility in the foreseeable future if the Open Offer and Placing are successful.

    Q3 Financial Results

    Meanwhile IQE reported a third quarter operating loss, before goodwill amortisation and exceptional items, of £2.23 million versus a £380,000 profit in the same period in 2000. Sales were up 28 percent on Q3 2000 but down 37 percent on Q2 2001, at £8.2 million.

    Drew Nelson said the trading environment had continued to be "extremely challenging" following a dramatic downturn in the opto-electronics market as customers cut jobs and reported falling profits. The Motorola deal came after the end of the quarter.

    But he added that the electronics sector had now started to show signs of recovery in the calendar fourth quarter.

    About IQE

    IQE plc (LSE: IQE.L, NASDAQ EUROPE: IQEP) is the leading global outsource supplier of advanced epi-wafers to the Semiconductor Industry with manufacturing operations in Cardiff and Milton Keynes, UK and Bethlehem, PA, USA. Its wafer products are used by a diverse range of customers worldwide to manufacture the critical, advanced components used in fibre optic communications systems, wireless and mobile telephony applications, optical storage devices such as CD, DVD, Minidisc and a range of other leading edge technologies including High Brightness LED displays, medical devices, satellite systems and automotive applications. The group has expanded to over 450 people worldwide.

    About Motorola

    Motorola, Inc. (NYSE:MOT) is a global leader in providing integrated communications and embedded electronic solutions. Sales in 2000 were $37.6 billion. Motorola Labs serves as the advanced research arm of the company, focusing on leading edge technologies for future products and product enhancements. Motorola also actively licenses technologies developed in the Labs to external customers.

    Business Risks: Statements about the impact of this new Technology are forward-looking and are based on current expectations that involve risk and uncertainties. Factors that could cause actual results to differ materially from those in the forward-looking statements include: market acceptance of the Technology; success in expanding Technology to other materials; unanticipated technological delays; competing technologies; the cost of manufacturing the Technology; and other factors found in Motorola s filings with the Securities and Exchange Commission.

    Media Contacts:
    Chris Meadows
    IQE plc
    Tel: +44 (0)29 2083 9400
    Fax: +44 (0)29 2083 9401 Chris Meadows
    IQE plc
    Tel: +44 (0)29 2083 9400
    Fax: +44 (0)29 2083 9401

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