Wavecom announces third quarter 2000 results

Product Revenues Rise 77.6% Year-Over-Year and 39.8% Over Second Quarter 2000. Operating Loss and Net Loss Narrow from Previous Quarter and Year. Production More Than Doubled in Past Six Months to Meet Strong Customer Demand.
Issy-les-Moulineaux, France -October 24, 2000

Wavecom S.A. (NASDAQ:WVCM; Nouveau Marché: WAVECOM), a leading developer of digital Wireless Standard Modules (WISMO™), today announced financial results for the quarter ended September 30, 2000. All results are unaudited and reported in accordance with U.S. generally accepted accounting principles.

Total revenues for the third quarter of 2000 increased 85.5% to €16.2 million from €8.7 million in the third quarter of 1999 and rose 44.1% over second quarter 2000 revenues of €11.3 million. Third quarter 2000 product revenues increased 77.6% to €15.3 million versus €8.6 million in the same quarter last year, and a sequential increase of 39.8% over product revenues of €11.0 million in the previous quarter.

Wavecom's revenue growth in the third quarter reflects increased production levels as the Company began to ramp up delivery on three large contracts with Asian customers, with significantly higher volumes and revenues expected to continue through the remainder of this year and into 2001. Wavecom continued to experience strong customer demand for its products in all target markets during the quarter.

Product gross margin in the third quarter of 2000 was 17.4% versus 23.5% in the prior quarter, and 25.0% in the third quarter of 1999. Gross margins continued to be impacted by the components shortage and by a disruption in the production process in September, which occurred when a supplier failed to deliver on time. This disruption in production resulted in higher costs for replacement components, transfers of component inventories between subcontractors, and increased manufacturing costs.

"We are pleased with the progress Wavecom has made in its transition to higher volume manufacturing this year, with production of WISMO2C nearly doubling every two months since mass production was launched in March," said Michel Alard, Chairman. "And with our product backlog increasing over 70% during the quarter to stand at €82 million at September 30, 2000, our top priority continues to be the successful execution and delivery of products under existing contracts. Nevertheless, our third quarter results were affected by the widespread shortage of components in our industry. In order to ensure that we will be able to meet customer demand, we have significantly increased our production capacity by adding new manufacturing lines, as well as a second supplier for a key component. We currently have supplier commitments for key components to meet expected production levels for the fourth quarter," he continued.

Sales of WISMO modules grew from €2.3 million in the third quarter of 1999 to €8.4 million in this year's third quarter, while wireless modem sales increased from €4.0 million to €6.9 million year-over-year. Third quarter product sales by direct channels were 62.3% of total product revenues, with sales by indirect channels representing 37.7%. Direct product sales by target market as a percentage of total product revenues were: Telephony, 27.4%; Automotive, 16.0%; Telemetry, 36.3%; and Multimedia, 20.3%.

Service revenues for this year's third quarter totalled €0.9 million compared with €0.1 million in the third quarter of 1999. These service revenues are earned primarily for product development work on existing contracts and are recorded once all contracted services are completed. At September 30, 2000, Wavecom had €3.6 million in deferred revenue on its balance sheet.

For the nine months ended September 30, 2000, total revenues were €34.7 million, a 15.6% increase over €30.0 million for the first nine months of 1999. Product revenues for the nine months ended September 30, 2000 were €33.4 million, increasing 17.5% compared to €28.4 million in the year-ago period. Service revenues for the first nine months of 2000 decreased to €1.2 million from €1.4 million last year.

The Company's operating loss for the third quarter of 2000 narrowed to €4.6 million from €5.4 million last year, and from €4.9 million in the second quarter of 2000. Operating expenses totalled €6.9 million in this year's third quarter compared to €7.6 million a year ago. 1999 operating expenses included a €2.7 million loss provision related to technology development contracts with ICO Global Communications. In 2000, Wavecom increased spending on its sales and marketing activities and incurred higher R&D expenses as development work continued on the next generation of WISMO modules, GPRS and third generation technology. In addition, general and administrative expenses increased as personnel were added at headquarters and in the subsidiaries.

Wavecom reported a net loss of €3.5 million, or €0.24 per share, for the third quarter of 2000 compared to a net loss of €5.5 million, or €0.41 per share, for the same quarter a year ago. Sequentially, Wavecom's net loss decreased 25.5% in the third quarter from €4.7 million, or 0.35 per share, in the second quarter of 2000.

The Company reported an operating loss of €14.3 million for the nine months ended September 30, 2000 compared to €9.6 million for the 1999 period. The Company's net loss for the first nine months of 2000 was €12.9 million, or €0.93 per share, versus €11.0 million, or €0.96 per share, for the comparable period last year.

Wavecom had €106.1 million cash-on-hand as of September 30, 2000. Product backlog at September 30, 2000 rose sharply to €82.0 million, compared to €47.7 million at June 30, 2000.

Mr. Alard commented: "The significant increases in revenues, backlog and production capacity, combined with narrowing losses, demonstrate that Wavecom is on track for continued growth and development."