Wavecom reports second quarter 2000 results

Product Revenues Rise 53.5% Over First Quarter as Company Begins to Deliver on High Volume Contracts. Strong Sales in all target Markets Contribute to Higher-than-Expected Product Revenues.
Issy-les-Moulineaux, France-July 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 June 30, 2000. All results are unaudited and reported in accordance with U.S. generally accepted accounting principles.

Total revenues for the second quarter 2000 increased to €11.3 million from €7.2 million in the first quarter of 2000, an increase of 56.5%. Second quarter 2000 product revenues rose 53.5% to €11.0 million, from €7.1 million in the first quarter of 2000. The sequential growth in product revenues was due to increased sales of WISMO modules, which grew from €3.5 million to €6.7 million, and of wireless modems, which increased from €3.6 million to €4.3 million.

Second quarter revenue growth was driven by higher than expected demand from customers in all of our target markets, as well as initial deliveries of WISMO modules to TCL in late June. Wavecom was able to ramp up production much more quickly than originally anticipated, despite the overall shortage of components throughout the industry. Volumes and revenues will continue to grow as production levels increase for TCL and other large contracts during the second half of this year.

Total revenues for this year's second quarter declined slightly year-over-year to €11.3 million from €11.5 million in the second quarter of 1999. Product sales for the second quarter of 2000 were €11.0 million, a 1.7% increase compared to €10.8 million a year ago. This relative stability in product revenue levels reflects the impact of the lag time between the completion of a high volume mobile telephone contract in July 1999, which represented 46.4% of second quarter 1999 product revenues, and deliveries under several new contracts signed last year that began at the end of this year's second quarter, including primarily the TCL and Funkanlagen contracts. Product revenues from the sale of WISMO modules increased 159% to €6.7 million in the second quarter of 2000, compared with €2.6 million in the second quarter of 1999. Second quarter 2000 product revenues from sales of wireless modems rose 34% to €4.3 million over wireless modem sales of €3.2 million in the same quarter a year ago. There were no product revenues from mobile telephone sales in the second quarter of 2000 versus sales of €5.0 million in the second quarter of 1999.

"Wavecom's strong performance and achievements in the second quarter continue to reflect the market's validation of our WISMO product offering," said Michel Alard, Chairman. "Our strategy over the past year was focused on signing significant new contracts for both mobile telephones and new applications, and we are very pleased with our success in achieving these milestones. Our recently announced agreement with Alcatel for a new high-end mobile telephone is one of our most important strategic achievements to date, and further strengthens Wavecom's position as the leading global supplier of wireless GSM solutions," he added.

Mr. Alard continued: "While we are continuing to aggressively market our WISMO products in key geographic markets around the world, our priority for the rest of the year will be on execution to ensure that we effectively deliver on our existing contracts. In addition, we continue to focus our product development efforts on meeting the demands of the marketplace to provide cost-effective, time-to-market solutions for advanced wireless communications in the future."

Product sales by direct channels were 65.9% of total product revenues in this year's second quarter, with indirect channel sales representing 34.1%. Direct product sales by target market as a percentage of total product revenues were: Telephony, 6.8%; Automotive, 10.7%; Telemetry, 34.9%; and Multimedia, 13.5%.

Service revenues for the second quarter of 2000 totalled €292,000, compared with €48,000 in the first quarter of 2000 and €644,000 in the same period a year ago. Wavecom will continue to earn service revenues for development work related to product contracts, but will not book the revenue until all contracted services are completed. At June 30, 2000, Wavecom had €3.6 million in deferred revenue on its balance sheet.

Product gross margin in Q2 2000 was 23.5% versus 34.1% in the prior quarter, and 20.6% in the second quarter of last year. Higher than expected demand for WISMO products, resulting in significant pressure on the production process, exacerbated the impact of cost increases from the industry-wide components shortage, adversely affecting gross margins. As the Company continues its transition to higher volume production as new contracts are delivered, average sales prices will decline but are expected to be offset by lower production costs associated with higher volumes.

For the six months ended June 30, 2000, total revenues were €18.4 million compared with €21.2 million for the comparable 1999 period. Product revenues for the first six months of this year were €18.1 million versus €19.8 million in the first half of 1999. Service revenues for the six months ended June 30, 2000 decreased to €340,000 from €1.3 million in the same period in 1999.

Operating loss for the second quarter of 2000 was €5.0 million, compared with €2.8 million in Q2 1999. Operating expenses grew to €6.7 million in the second quarter of 2000 from €4.5 million in the same quarter last year as Wavecom increased its spending on new product development and ramped up the sales and marketing teams. R&D expenses rose to €3.6 million in this year's second quarter from €2.5 million in Q2 1999 as the Company focused its development efforts on the next generation WISMO3 and WISMO5 modules, as well as developing key GPRS and UMTS technologies. Sales and marketing costs rose in line with increases in sales and support personnel. Higher general and administrative expenditures relating to Wavecom's obligations as a publicly-traded company also contributed to the increase in operating expenses during the second quarter 2000 compared with the same period in 1999.

Wavecom reported a net loss of €4.7 million, or €0.35 per share, for the second quarter of 2000, compared with a net loss of €4.0 million, or €0.37 per share, in the comparable period last year.

For the six months ended June 30, 2000, the Company reported an operating loss of €9.7 million versus €4.2 million for the same period a year ago. Net loss for the first half of 2000 was €9.4 million, or €0.69 per share, compared to €5.5 million, or €0.53 per share, for the six months ended June 30, 1999.

Wavecom's balance sheet remains strong, with €117.1 million cash-on-hand as of June 30, 2000, including net proceeds of approximately €97 million from the Company's secondary offering completed in June. Backlog at June 30, 2000 increased significantly to €48.6 million, compared to €25.5 million at March 31, 2000.