Wavecom announces second quarter 2002 results

Company reports record revenues of €136.0 million. Product gross margin progresses to 29.2%; operating income increases to 9.3% of revenues.
Issy-les-Moulineaux, France-July 23, 2002
Wavecom SA (Nasdaq: WVCM; Euronext Nouveau Marche: 7306), the world’s number one provider of complete wireless solutions, today announced operating results for the second quarter. All results are unaudited and reported in accordance with U.S. generally accepted accounting principles (US GAAP).

For the second quarter of 2002, Wavecom reported that total revenues rose 84% to €136.0 million from €73.8 million for the second quarter of 2001, and increased 25% from the €108.6 million achieved in the first quarter of 2002. The rise in product revenues reflects continued strong sales into the Asian market. Sales to the Asia-Pacific region represented 82.2% of total revenues, with 11.7% for the Europe/Middle East/Africa region and 6.1% for the Americas region. Sales of WISMO modules accounted for 93.2% of total Q2 revenues (modem sales: 6.6%, service revenues: 0.2%).

Total product shipments reached a record 2.1 million units in the second quarter, up from 1.5 million in the first quarter. Product backlog rose sharply to €244 million at June 30, 2002, which was 39% higher than backlog of €175 million at March 31, 2002. To meet higher demand, Wavecom increased its production capacity with its existing contract manufacturers in Europe and has met its objective of having in place a theoretical production capacity of 4 million units per quarter.

“Our robust second quarter operating performance was sustained by a continued demand for our products across several market sectors,” said Michel Alard, Wavecom’s chairman. “During the second quarter, we successfully launched the WISMO Quik 2400 series and signed a major contact with Pantech, one of Korea’s largest communications equipment manufacturers, to supply WISMO Pac modules for its GSM/GPRS phones to be launched in Europe in Q1 2003. We signed strategic contracts with several customers, including Digicom (Italy) for use of the WISMO Quik series across its full line of GSM/GPRS modems and Autoliv (Sweden) for the Volvo On Call telematic system. Additionally, we received significant follow-on orders from Sewon (South Korea) for use of the latest WISMO Quik series in a new line of phones destined for the Chinese market in Q3 2002. These contracts with and orders from new and existing customers in diverse markets strengthen our position and demonstrate the versatility of our WISMO Quik and WISMO Pac product lines.”

The quarterly product revenue breakdown by market was: Personal Communication Devices (“PCD”, which includes mobile telephones and personal digital assistants), 82.3%; Machine to Machine (“M2M”, formerly known as telemetry), 2.9%; Automotive, 3.0%; and indirect sales to Distributors, 11.8%, which the Company understands are used primarily for M2M applications.

Product gross margin for the second quarter continued to improve to 29.2%, compared with 26.7% for the previous quarter and 17.2% for the second quarter last year. The continued strong performance reflects ongoing efforts to lower component and labor costs and continued gains in production efficiency, even as production capacity ramped up significantly, a new product was launched in the quarter and average selling prices continued to decline.

Operating expenditures for the second quarter of 2002 were €26.5 million, versus €13.5 million for the previous year’s second quarter and €21.7 million for the first quarter of 2002. The increase is largely a result of headcount increases across the board in order to support the continued rapid growth of the Company. At June 30, 2002, total personnel numbered 725 compared with 640 at the end of March 2002 and 430 at the end of June 2001.

For the second quarter of 2002, Wavecom increased operating income to €12.7 million, compared with a €686,000 loss during the same quarter a year ago, and representing an increase of 102% from operating income of €6.3 million in the first quarter of 2002.

The Company reported net income of €5.8 million for this year’s second quarter, or €0.39 per share (€0.37 on a fully diluted basis), compared with €433,000, or €0.03 per share (basic and diluted), for the second quarter of 2001. Second quarter net income decreased compared with the first quarter 2002 net income of €7.8 million, or €0.53 per share (€0.51 on a fully-diluted basis), as a result of a significant net foreign exchange loss of €8.4 million in the quarter. This foreign exchange loss stemmed from the rapid decline in the U.S. dollar compared to the euro during the second quarter of 2002, and in particular during the month of June when the majority of the Company’s sales during Q2 2002 were recognized. Foreign exchange losses were incurred on cash balances and accounts receivable denominated in dollars, offset by gains on accounts payable in dollars.

For the six months ended June 30, 2002, total revenues were €244.6 million compared with €127.8 million for the comparable 2001 period - an increase of 91.4%. The Company reported gross profit of €67.2 million (reflecting a product gross margin of 28.1%) for the first half of 2002, up 198% compared with €22.5 million (product gross margin 16.3%) in the first half of 2001. For the six months ended June 30, 2002, operating income totaled €19.0 million compared with an operating loss of €3.0 million in the same period in 2001. Net income for the first half of 2002 was €13.6 million, or €0.91 per share (€0.88 diluted), compared with a net loss of €1.1 million, or €0.08 per share (basic and diluted) in the first half of 2001.

As of June 30, 2002, the Company had cash, cash equivalents and short-term investments of €123 million, compared with €102 million at March 31, 2002, as a result of increased cash flow from operations, offset in part by capital expenditures necessary for increasing production capacity.