Wavecom announces first quarter 2001 results

Quarterly Sales Increase 75% to €54.0 Million from Q4 2000 and 651% Year-Over-Year.
Issy-les-Moulineaux, France -April 24, 2001

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, 2001. All results are unaudited and reported in accordance with U.S. generally accepted accounting principles.

Total revenues for the first quarter of 2001 increased 651% to €54.0 million, from €7.2 million in the first quarter of 2000, and rose 74.8% over fourth quarter 2000 revenues of €30.9 million. First quarter 2001 product revenues increased 617% to €51.2 million versus €7.1 million in the same quarter last year, and showed a sequential increase of 72.9% over product revenues of €29.6 million in the previous quarter. First quarter sales of WISMO modules grew to €39.1 million from €3.5 million a year ago, and sales of wireless modems totaled €12.1 million versus €3.6 million in the same period last year.

The significant increase in product revenue is primarily due to increased manufacturing capacity as the second manufacturing line added in October 2000 was fully operational for the entire quarter and two new manufacturing lines were added during the quarter. The two new lines were fully operational by March and engineering changes which took place in the fourth quarter of 2000 and in the first quarter of 2001 increased the production capacity of each line. With the recent reorders from TCL, Sewon and Falcom for additional WISMOs, the Company expects that revenue growth will continue to ramp up as production volumes rise, particularly given the relative strength in the Chinese handset market, which is the primary target market for TCL and Sewon.

"I am very pleased with Wavecom's strong first quarter performance and our success in becoming a high volume player," said Michel Alard, Chairman. "The steps we took over the past several months to significantly improve the production process, expand capacity and increase yields have enabled Wavecom to meet the increasing demand for its products, while continuing to focus on reducing costs," he stated. "During the first quarter, we also signed significant contracts and announced strategic alliances with new and repeat customers in the United States, Europe and Asia for a variety of wireless applications. We believe that these customer wins and relationships, which include Handspring, Falcom, Advanced Micro Devices and Sewon Telecom, have further strengthened Wavecom's position as the leading producer of complete time-to-market wireless solutions."

Product sales by direct channels represented 76.7% of total product revenues in the first quarter 2001, with channel sales representing 23.3% of product revenue. Direct product sales by target market were: Telephony, 66.0%; Automotive, 5.4%; Telemetry, 10.5%; and Multimedia, 18.1%.

Product gross margins in the first quarter increased to 15.2% from 13.2% in the previous quarter as production costs declined and yields rose, whereas product gross margins were 34.1% in the same period last year. Gross margins in the first quarter of 2000 reflected a significant difference in product mix with less sales into the telephony market prior to the ramp-up of large volume contracts in this sector which took place in the second half of 2000. The improvement in gross margins compared to the fourth quarter 2000 resulted from the Company's implementation of previously announced cost reduction measures as well as from increased manufacturing efficiencies attributed to improvements in the production process. These cost savings resulted in improved margins even though average selling prices for both the WISMO module and the wireless modem continued to decline. The Company expects margins to continue to increase gradually over the course of 2001 as price pressures from component shortages ease.

Service revenues totaled €2.8 million in this year's first quarter and compared with €48,000 in the first quarter of 2000. At March 31, 2001, Wavecom had €1.8 million in deferred revenue on the balance sheet for contracted product development services not yet completed.

For the three months ended March 31, 2001, Wavecom reported an operating loss of €2.3 million, compared with a €4.7 million loss in the same period last year and a €5.5 million loss in the fourth quarter of 2000. The improvement in operating results stems from significantly higher revenues and higher gross margins, partially offset by higher operating expenses. Operating expenses rose to €12.0 million in the first quarter of 2001 from €6.5 million a year ago and from €9.3 million in the prior quarter, but continued to steadily decline as a percentage of revenue. The Company increased spending for ongoing research and development work on new versions of the WISMO module and GPRS and other advanced wireless technologies. Expenditures also grew during the first quarter due to expanded sales and marketing activities in the U.S. and Asia, as well as higher rent costs in France as the Company leased additional office space.

Mr. Alard continued: "We believe we have significant potential for future development in both the U.S. and Asia, as illustrated by our recent agreements signed with Handspring, Trimble and AMD, as well as Sewon. Consequently, we have reinforced our presence in the U.S. during the first quarter with the hiring of Hany Neoman as COO of our U.S. subsidiary in San Diego. "

The Company's first quarter 2001 net loss narrowed to €1.5 million, or €0.11 per share, compared with a net loss of €4.7 million, or €0.35 per share, in the same period last year, and a net loss of €1.6 million, or €0.11 per share, in the fourth quarter of 2000. The net loss included net interest income of €1.1 million in the first quarter 2001 (€113,000 in the first quarter 2000 and €1.2 million in the fourth quarter 2000) offset by a net foreign exchange loss of €823,000 in the first quarter 2001 (a net foreign exchange loss of €58,000 in the first quarter 2000 and a net foreign exchange gain of €1.1 million in the fourth quarter 2000).

As of March 31, 2001, Wavecom had €96.7 million in cash, cash equivalents and short-term investments. Product backlog at March 31, 2001 remained stable at €102 million, compared to €103 million at December 31, 2000. The Company's production capacity has increased significantly, enabling customer orders to be delivered on a more timely basis, while customer demand continued to grow.