Wavecom announces full year and fourth quarter 2002 earnings

Company reports net income for 2002 of €42.1 million up from €9.3 million in 2001.
Issy-les-Moulineaux, France-February 11, 2003

Wavecom SA (NASDAQ: WVCM; Euronext Nouveau Marché: 7306), today announced earnings for the fourth quarter and full year of 2002. The Company achieved record levels of profitability and revenue. All figures are unaudited and reported in accordance with U.S. generally accepted accounting principles (US GAAP).

For the fourth quarter of 2002, Wavecom reported total revenues of €135.4 million, an increase of 28.6% from €105.3 million during the same period of 2001, and a decline of 20.8% from €171 million from the third quarter of 2002. Total revenues for the full year ended December 31, 2002 increased 70.8% to €551.1 million compared with €322.7 million in 2001. Sales of WISMOs to telephone handset manufacturers in Asia continued to drive Wavecom’s sales.

Sales of WISMOs represented 93.1% of total sales for the year while sales of modems represented 6.6% of sales and revenues derived from services were less than one percent of total sales in 2002. For the full year of 2002, product shipments totaled 8.8 million units, more than double compared to the 4 million units shipped in 2001.

The annual product revenue breakdown by market was: Personal Communication Devices (which includes mobile telephones and personal digital assistants), 82.2%; Machine to Machine (M2M), 3.5%; Automotive, 3.0%; and indirect sales to Distributors, 11.3%, which the Company believes represents primarily the M2M application market. Revenues by geographic regions for the year were Asia-Pacific: 82.2%; Europe, Middle-East and Africa: 13.2% and Americas: 4.6%.

Backlog at December 31, 2002 was €95 million, which the company expects to ship primarily during the first quarter of 2003.

Product gross margin for the fourth quarter 2002 reached 40.4%, compared with 32% for the previous quarter and 22.7% for the fourth quarter last year. Strong product gross margin reflects a combination of component price declines, manufacturing productivity gains, lower manufacturing costs, as well as changes in estimates related to product returns and warranty matters which had a positive impact on gross margin. Average selling prices for WISMOs continued to trend down, decreasing by 2.2% from the previous quarter and 20.1% from the fourth quarter of 2001.

Operating expenditures for the fourth quarter of 2002 were €43.1 million, versus €18.1 million in the same period of 2001 and €27.1 million for the third quarter of 2002. The increase from the third to fourth quarter 2002 was largely a result of headcount additions, particularly in research and development, as well as increases in sales and marketing expenditures. Increased research and development spending also reflected expenses recognized when external development projects achieved certain milestones in the fourth quarter. Higher expenses for sales and marketing were linked to the launch of a corporate visibility campaign and an increase of sales commissions paid to intermediaries in Asia. At December 31, 2002, total headcount was 900 compared to 825 as of September 30, 2002 and 580 at December 31, 2001.

For the fourth quarter of 2002, Wavecom reported operating income of €10.4 million (7.7% of sales), compared with €4.5 million during the same quarter a year ago, representing a year on year increase of 131%. Operating income was €26.6 million in the third quarter of 2002, representing a sequential decline of 61%.

The Company reported net income of €11.2 million for the fourth quarter of 2002, or €0.75 per share (€0.73 on a diluted basis), an 80.6% increase compared with €6.2 million, or €0.42 per share (€0.40 on a diluted basis) for the fourth quarter of 2001. This represents a decrease of 35.3% compared with the third quarter 2002 net income of €17.3 million, or €1.16 per share (€1.11 on a diluted basis). During the quarter, the Company had net interest income of €1.2 million and a net foreign exchange loss of €3.7 million related mainly to the sudden weakening of the U.S. dollar versus the Euro, especially in December. Foreign exchange losses were incurred on cash balances and accounts receivable denominated in dollars, which were partially offset by gains on accounts payable in dollars. Due to tax planning strategies implemented during the year, Wavecom realized a tax benefit of €3.3 million in the fourth quarter of 2002.

For the full year ended December 31, 2002, total revenues increased to €551.1 million or 70.8% compared with €322.7 million for 2001. The Company reported total gross profit of €174.5 million (reflecting a product gross margin of 32.3%) for the full year 2002, compared with €63.3 million (with a product gross margin of 19.8%) in 2001. For the full year 2002, operating income increased significantly to €56 million compared with €3 million in 2001. Net income for full year 2002 was €42.1 million, or €2.82 per share (€2.74 on a diluted basis), compared to €9.3 million, or €0.63 per share (€0.61 on a diluted basis) in 2001.

Inventories decreased from €48 million at September 30, 2002 to €30.2 million as of December 31, 2002, despite the sales shortfall during the fourth quarter. Accounts receivable increased from €65.6 million at September 30, 2002 to €85.9 million at December 31, 2002, reflecting the concentration of fourth quarter sales in the month of December. Accounts payable, in contrast, declined from €114.4 million at September 30, 2002 to €99.9 million at December 31, 2002, as production had been concentrated in the early part of the quarter. As of December 31, 2002, the Company had cash, cash equivalents and short-term investments of €134.5 million, compared with €148 million at September 30, 2002.

“We are extremely pleased with our financial performance in 2002, marking another profitable year for Wavecom”, commented Michel Alard, Wavecom Chairman. Aram Hékimian, Wavecom CEO, added, “We are confident that the expanded product offering we announced yesterday combined with the focused global sales organization will spur Wavecom’s business in 2003”.

As indicated in the January 22, 2003 press release, announcing 2002 revenues, Wavecom is implementing an action plan in 2003 which includes the following short-term initiatives:

  • Launch and promote Wavecom’s new product offer “Wireless Open Workshop”
  • Prioritize sales and support resources in order to assist our existing handset customers in their growth phase and to attract new top tier handset customers
  • Establish a dedicated “customer care” unit
  • Develop partnerships for creating innovative and unique solutions for M2M and automotive markets
  • Accelerate plan to develop technological partnerships

First quarter 2003 earnings are scheduled to be announced on April 29, 2003 at 7:30 am Paris time, followed by a conference call for financial professionals at 3 pm Paris time.

Wavecom management will present its 2002 full year performance and strategic initiatives to the financial community this afternoon at a meeting in Paris followed by a conference call in English. Visit the Wavecom corporate website: www.wavecom.com investors section to listen to this conference call commentary webcast.