Wavecom reports first quarter 2000 results

Product Revenues and Gross Margins in line with Company Expectations. Quarterly Product Revenues Increase by 16.8% to €7.1 Million Over Q4 1999.
Issy-les-Moulineaux, France-April 25, 2000

Wavecom S.A. (NASDAQ:WVCM; Nouveau Marché: WAVECOM), a leading developer of digital Wireless Standard Modules (WISMO™), today announced operating results for the quarter ended March 31, 2000. All results are unaudited and reported in accordance with U.S. generally accepted accounting principles.

First quarter 2000 total revenues increased to €7.2 million from €6.6 million in the fourth quarter of 1999, an increase of 9.4%. Product revenues increased to €7.1 million from €6.1 million in the fourth quarter of 1999, a 16.8% increase. The increase in product revenue was due to increases in sales of WISMO modules, which increased from €2.8 million to €3.5 million, and of wireless modems, which increased from €3.2 million to €3.6 million.

Total revenues decreased from €9.8 million in the first quarter of 1999, of which €9.0 million were from product sales, to €7.2 million in Q1 2000, a decrease of 26.6%. This decrease was principally due to the completion in July 1999 of a contract with Mitsubishi for the manufacture of mobile telephones. There were no sales of mobile telephones in the first quarter of 2000, while mobile telephone sales in the first quarter of 1999 totalled €5.4 million. Product revenues from the sale of WISMO modules increased 75% in the first quarter of 2000, compared with WISMO module sales of €2.0 million in the first quarter of 1999, while product revenues from wireless modem sales increased 123% in the first quarter of 2000, compared with wireless modem sales of €1.6 million in the first quarter of 1999.

Wavecom signed contracts with new customers in the second half of 1999 and in early 2000 for the sale of WISMO modules for both mobile telephones and new applications. Given the nine- to twelve-month development period needed to integrate the WISMO module into new mobile telephone designs, deliveries under new mobile telephone contracts are scheduled to begin at the end of the second quarter of 2000, with volumes and revenues increasing during the remainder of the year.

Michel Alard, Chairman, stated: "I am very pleased with Wavecom's results for the first quarter of this year. We have continued to execute our strategy of targeting high growth new and emerging markets and developing new applications for our WISMO modules. Importantly, during this quarter we have continued to sign significant contracts and establish new partnerships, including our largest contract to date with NEC Corporation."

Product sales by direct channels represented 59.5% of total product revenues in the first quarter 2000, with sales through indirect channels representing 40.5%. Direct product sales by target market as a percentage of total product revenues were: Telephony, 0.7%; Automotive, 9.4%; Telemetry, 38.6%; and Multimedia, 10.7%.

Product gross margin rose to 34.1% in the first quarter of 2000 from 25.5% in the prior quarter and 26.4% a year ago, primarily due to higher production yields and reduced unit costs on mature products in the first quarter of 2000. However, the Company expects that product gross margins may not remain at this high level as the Company begins to deliver under high volume contracts with lower average selling prices.

Service revenues totaled €48,000 in this year's first quarter compared with €638,000 in the first quarter of 1999, when the majority of service revenues were derived from one remaining technology development agreement signed in 1996. With the completion of the Company's transition to a product-based business, service revenues now are derived from WISMO module customers and are recognized when all contracted services are completed and accepted by the customer. At March 31, 2000, Wavecom had €2.3 million in deferred revenue on the balance sheet.

For the three months ended March 31, 2000, Wavecom reported an operating loss of €4.7 million, compared with €4.8 million in the prior quarter and €1.4 million in the same period in 1999. The Company had a net loss of €4.7 million, or €0.35 per share, in the first quarter of 2000, compared with a net loss of €4.0 million (€0.30 per share) in the fourth quarter of 1999.

Research and development expenses rose in this year's first quarter to €3.7 million from €3.6 million in the prior quarter and €2.8 million in Q1 1999 as the Company continued its development efforts on integrated modems, dual-band versions of the WISMO2 and WISMO3 modules, and GPRS versions of WISMO modules.