Wavecom announces third quarter 2002 earnings

Company reports record revenues of €171 million up 91% from Q3 2001 and up 26% from Q2 2002.
Issy-les-Moulineaux, France -October 22, 2002
Wavecom SA (Nasdaq: WVCM; Euronext Nouveau Marche: 7306), the world’s number one provider of integrated wireless modules, today announced earnings for the third quarter of 2002. All results are unaudited and reported in accordance with U.S. generally accepted accounting principles (US GAAP).

For the third quarter of 2002, Wavecom reported that total revenues rose 91% to €171 million from €89.6 million during the third quarter of 2001, and increased 26% from €136 million achieved in the second quarter of 2002. The rise in revenues reflects continued strong sales into the Asian market. Sales to the Asia-Pacific region represented 87.2% of total revenues, with 10.3% for the Europe/Middle East/Africa region and 2.5% for the Americas region. Sales of WISMO modules accounted for 95.5% of total third quarter revenues (modem sales: 4.2%, service revenues: less than 1%).

Total product shipments reached 2.9 million units in the third quarter, as Wavecom announced the shipment of its 10 millionth WISMO since production of WISMOs began. Unit shipments increased 39% sequentially from the second quarter. Product backlog remained at €244 million as of September 30, 2002, unchanged from June 30, 2002, but management expects sequential growth in sales for the fourth quarter of 2002.

The quarterly product revenue breakdown by market was: Personal Communication Devices (which includes mobile telephones and personal digital assistants), 84.2%; Machine to Machine (M2M), 4.0%; Automotive, 2.8%; and indirect sales to Distributors, 9.0%, which the Company believes represents primarily the M2M application market.

Product gross margin for the third quarter 2002 reached 32%, compared with 29.2% for the previous quarter and 21.2% for the third quarter last year. The strong increase reflects both continuing improvement in manufacturing efficiency and component price declines. Average selling prices for WISMOs continued to trend down, decreasing by 9% from the previous quarter and 27% from the third quarter of 2001. Wavecom plans to continue its aggressive price reduction strategy in order to achieve two goals: first, to expand its addressable market and secondly, to increase volumes with existing customers.

Operating expenditures for the third quarter of 2002 were €27.1 million, versus €16.7 million for the previous year’s third quarter and €26.5 million for the second quarter of 2002. The increase from Q3 2001 is largely a result of a headcount rise across the board in order to support the continued rapid growth of the Company. At September 30, 2002, total personnel numbered 825 compared with 725 at the end of June 2002 and 580 at the end of December 2001.

For the third quarter of 2002, Wavecom increased operating income to €26.6 million (15.6% of sales), compared with €1.5 million during the same quarter a year ago, and representing an increase of 110% from operating income of €12.7 million in the second quarter of 2002.

The Company reported net income of €17.3 million for this year’s third quarter, or €1.16 per share (€1.11 on a diluted basis), compared with €4.2 million, or €0.29 per share (€0.27 on a diluted basis), for the third quarter of 2001. This represents an increase of 201% compared with the second quarter 2002 net income of €5.8 million, or €0.39 per share (€0.37 on a diluted basis). During the quarter, the Company had interest income of €787,000 and a net foreign exchange gain of €981,000. Wavecom had tax expense for the first time during the third quarter of 2002 amounting to €11.3 million. All tax loss carry forwards in France have now been fully utilized.

For the nine months ended September 30, 2002, total revenues were €415.7 million compared with €217.3 million for the comparable 2001 period - an increase of 91%. The Company reported total gross profit of €120.9 million (reflecting a product gross margin of 29.7%) for the first nine months of 2002, up significantly compared with €40.8 million (with a product gross margin of 18.4%) in the first nine months of 2001. For the nine months ended September 30, 2002, operating income totaled €45.6 million compared with an operating loss of €1.5 million in the same period in 2001. Net income for the first nine months of 2002 was €30.8 million, or €2.07 per share (€2.00 diluted), compared to €3.1 million, or €0.21 per share (€0.20 diluted) in the first nine months of 2001.

Inventories increased significantly from €29.3 million at the end of Q2 2002 to €48 million as of September 30, 2002 as the company managed a number of factors related to adjustments in customer forecasts and new Wavecom product introductions. As of September 30, 2002, the Company had cash, cash equivalents and short-term investments of €148 million, compared with €123 million at June 30, 2002.

Wavecom Chairman, Michel Alard commented, “We are very satisfied with Wavecom’s strong financial performance during the third quarter of 2002, although limited longer-term visibility causes us to maintain a conservative outlook. Nevertheless, we believe the evolutions of the wireless market space are favorable to Wavecom and that our leading-edge technology positions us to compete very aggressively.”

Fourth quarter and full year 2002 revenues will be announced on January 22, 2003 at 7:30 am Paris time. Complete results for the fourth quarter and full year 2002 will be reported on February 11, 2003 at 7:30 am Paris time.

Visit the Wavecom corporate website: www.wavecom.com investors section to listen to the Q3 2002 conference call commentary webcast.