Wavecom reaches profitability in the second quarter 2001

Quarterly Sales Increase 553% Year-Over-Year and Gross Margins Improve.
Issy-les-Moulineaux, France-July 24, 2001

Wavecom S.A. (NASDAQ: WVCM; Nouveau Marché: 7306), a leading developer of digital Wireless Standard Modules (WISMO™), today announced operating results for the quarter ended June 30, 2001. All results are unaudited and reported in accordance with U.S. generally accepted accounting principles.

Total revenues for the three months ended June 30, 2001 increased 553% to a record €73.8 million from €11.3 million in the second quarter of 2000, and rose 36.7% over first quarter 2001 revenues of €54.0 million. Second quarter 2001 product revenues increased 558% to €72.4 million versus €11.0 million in the same quarter last year, and showed a sequential increase of 41.4% over product revenues of €51.2 million in the previous quarter. Second quarter sales of WISMO modules grew to €65.1 million from €6.7 million a year ago, and sales of wireless modems totaled €7.4 million versus €4.3 million in the same period last year.

The increase in second quarter revenues was driven by sharply higher telephony sales in the high-growth Asia-Pacific region to existing Wavecom customers, primarily Sewon and TCL. The additional manufacturing lines that were added earlier this year, as well as improved production processes, eased capacity constraints and enabled Wavecom to meet the high demand for its products on schedule. Total second quarter shipments rose substantially to 865,000 units from 560,000 units in the first quarter. In addition to the four lines already in place at the Company's primary sub-contractor, in June the Company began manufacturing WISMO modules on one line at its second subcontractor, which previously had assembled only wireless modems. The Company plans to add a third sub-contractor by early next year to provide increased manufacturing capacity in the future.

"Wavecom's record sales reflect the strong demand for our WISMO solution and combined with an improvement in gross margins, enabled us to reach profitability this quarter," said Michel Alard, the Company's Chairman. "We expect our revenue ramp to continue as production levels rise. The Chinese handset market has remained strong despite the economic slowdown in other parts of the world, and we will continue to make this our primary target in the near-term. However, we remain fully committed to all four of our target markets."

Mr. Alard continued: "We are very pleased with our strong performance in the second quarter. Although we have limited visibility looking out beyond the next several months, we have not, to date, experienced any of the significant cancellations or delays that have affected others in the industry and our backlog remains strong. We continue to be focused on reducing costs and improving margins, and we will closely monitor spending in the months ahead as we move toward our goal of profitability at the operating level by year-end."

Product sales by direct channels represented 89.1% of total product revenues in the second quarter 2001, while indirect channel sales represented 10.9% of product revenues. Direct product sales by target market were: Telephony, 84.0%; Automotive, 2.5%; Telemetry, 9.3%; and Multimedia, 4.2%.

Product gross margins in the second quarter increased to 17.2% from 15.2% in the previous quarter, and compared to gross margins of 23.5% in the second quarter last year. The margin improvement reflects additional savings achieved through ongoing cost reduction measures undertaken over the past several months, as well as greater manufacturing efficiencies. While gross margins were still impacted by higher-priced components that were purchased late last year, the Company expects to use those remaining component inventories during the current quarter, which should result in a gradual improvement of margins.

Service revenues totaled €1.4 million in this year's second quarter and compared with €292,000 in the second quarter of 2000. At June 30, 2001, Wavecom had €2.7 million in deferred revenue on the balance sheet for contracted product development services not yet completed.

For the second quarter of 2001, Wavecom reported an operating loss of €686,000, compared with a loss of €5.0 million in the same period last year, and a €2.3 million loss in the first quarter of 2001. The significant improvement in operating results stems from sharply higher revenues and improved gross margins, partially offset by higher operating expenses. Operating expenditures rose to €13.5 million in the second quarter of 2001 from €6.7 million a year ago and from €12.0 million in the prior quarter, but declined as a percentage of revenue from 59.7% last year and 22.2% last quarter to 18.3% in the second quarter of 2001. Wavecom's operating expenses continued to reflect increased R&D spending for work on next-generation WISMO modules, and GPRS and UMTS technologies. Expenditures also grew during the quarter due to additional headcount in the Company's production and quality departments, as well as the impact of additional rent expense from new office space added during the quarter.

The Company achieved profitability in the second quarter 2001 with net income of €433,000, or €0.03 per share (basic and diluted), 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 €1.5 million, or €0.11 per share, in the first quarter of 2001.

For the six months ended June 30, 2001, total revenues were €127.8 million compared with €18.4 million for the comparable 2000 period. Product revenues for the first six months of this year were €123.7 million versus €18.1 million in the first half of 2000. Service revenues for the six months ended June 30, 2001 increased to €4.1 million from €340,000 in the same period in 2000.

For the six months ended June 30, 2001, the Company reported an operating loss of €3.0 million versus an operating loss of €9.7 million for the same period a year ago. Net loss for the first half of 2001 was €1.1 million, or €0.08 per share, compared to a net loss of €9.4 million, or €0.69 per share, for the six months ended June 30, 2000.

As of June 30, 2001, Wavecom had €102.3 million in cash, cash equivalents and short-term investments, up from €96.7 million at March 31, 2001. Product backlog at June 30, 2001 grew to €116 million, compared to €102 million at March 31, 2001, and continued to reflect strong sustained customer demand.