Wavecom announces fourth quarter and full year 2003 results

Issy-les-Moulineaux, France-February 11, 2004

Wavecom SA (NASDAQ: WVCM; Euronext Nouveau March: AVM), a provider of integrated wireless technology solutions for Vertical Applications (including machine-to-machine, automobiles and wireless local loop) and Personal Communication Devices (PCDs including telephone handsets and smartphones), today announced financial results for the fourth quarter and the full year ended December 31, 2003. All figures are unaudited and reported in accordance with U.S. generally accepted accounting principles (US GAAP).

In millions of euros
except for share and per share data
Q4 2002 Q3 2003 Q4 2003 Full year ended Dec. 31, 2003
Revenues €135.4 €57.4 €60.3 €275.6
Gross profit 53.6 18.2 29.5 102.5
Operating expenses 43.1 31.0 32.9 133.5
Operating income (loss) 10.4 (12.8) (3.5) (31.0)
Net income (loss) 11.2 (10.5) (4.8) (25.9)
Earnings (loss) per share (basic) €0.75 (€0.69) (€0.31) (€1.70)
No. shares used for calculation 15,052,768 15,231,484 15,339,732 15,216,589

For the fourth quarter of 2003, Wavecom reported total revenues of €60.3 million, representing a 5% increase from the third quarter of 2003 and a 55% decline year-on-year. At constant currencies*, Wavecom revenues would have increased 10% over the previous quarter and declined 50% year-on-year.

Wavecom made further progress on diversifying its customer and geographic base. The top ten customers in the fourth quarter of 2003 together represented 70% of total revenues, compared to 82% during the previous quarter and 87% in the fourth quarter of 2002. For the full year 2003, Wavecom’s top ten customers represented 76% of total revenues, down from 90% for the full year 2002. No single customer represented more than 20% of revenues in 2003.

Wavecom sales by market and geographic region

Q4 2003 product sales by market:
PCD (Personal Communication Devices) 38%
Vertical markets
M2M (Machine to Machine) 10%
Distributors (selling primarily to M2M) 35%
Automotive 17%
Q4 2003 sales by geographic region:
Asia-Pacific 59%
Americas 5%
Europe, Middle-East and Africa 36%

For the full year 2003, product sales to vertical markets totalled €130 million, marking an increase of 33% compared to €98 million in 2002, while sales to PCD applications totalled €142 million in 2003 declining 69% compared to €452 million in 2002.

Average selling prices (ASPs) for WISMO modules decreased 9% from the previous quarter and declined 20% year-on-year from the fourth quarter of 2002, in-line with management’s expectations.

Product gross margin for the fourth quarter of 2003 was 50.9%. This unusually high gross margin was primarily the result of the reevaluation of provisions for third party intellectual property royalties after the Company entered into significant new royalty agreements in 2003. Another contributing factor to the high gross margin is the large contribution of sales from vertical markets, which tend to have higher gross margins than the PCD business.

Operating expenses, which included a €4.2 million write-down of goodwill in the fourth quarter of 2003, totaled €32.9 million, marking an increase of 6% over the previous quarter but a decline of 24% compared to the same quarter a year ago. General and administrative expenses included a provision of approximately €1.2 million for doubtful accounts and an additional €3.3 million provision for loss related to the consolidation of office space in France.

Headcount as of December 31, 2003 stood at approximately 860, about 20% of which was represented by independent contractors and temporary personnel. Wavecom announced on January 23, 2004 its plans to implement a new organizational structure, which includes a plan to reduce headcount, primarily in the US and France. Once the plan is fully implemented, the Company anticipates that its worldwide headcount will be approximately 560, including both salaried employees as well as independent contractors and temporary personnel. This plan is expected to cost approximately €10 to 15 million which relates primarily to headcount reduction and related charges including severance and outplacement packages. The plan is expected to be completed by June 30, 2004.

As a result of the weakening of the U.S. dollar against the euro, Wavecom recorded a net foreign exchange loss of €2.1 million for the full year of 2003. The Company recorded a net tax benefit of €4.4 million for 2003, as a result of tax loss carrybacks and research tax credits in France.

As of December 31, 2003, the Company had cash and short-term investments of €111 million, a sequential decline from €119 million as of September 30, 2003, which reflects primarily the impact of the quarter’s operating loss. Inventories increased to €33.8 million as of December 31, 2003, compared to €17.7 million as of September 30, 2003. Accounts receivable for the fourth quarter of 2003 totaled €44.6 million, representing 67 days sales outstanding, down from 68 days at September 30, 2003.

Looking back at 2003, Aram Hékimian, Wavecom CEO said, “The year 2003 was an extremely challenging one for us as we confronted aggressive competition in a dynamic global market. However, we made significant advances on key strategic initiatives, including the Company’s move into silicon chipset design. We begin 2004 from a solid base of ten years’ experience in the area of wireless core technology design with plans in place to streamline and refocus our Company by July 2004. We believe the first six months of this year are pivotal for Wavecom as we build on our strong position in the vertical markets and confirm our ability to provide mobile telephone manufacturers with complete solutions at competitive prices.”

Based on information currently available to the Company, including a backlog of €63 million** as of December 31, 2003, management projects that revenues for the first quarter of 2004 will be sequentially down from the fourth quarter 2003 and reiterated its 30% gross margin target as an ongoing, long-term objective for 2004.

Looking to 2004 and beyond, Michel Alard, Wavecom chairman stated, “We have focused on reducing our cost structure and creating a more efficient and performance-driven company. Moving forward, we believe that a keen focus on our two distinct markets -- verticals and personal communication devices -- and a clear vision for our portfolio of products, will bring stability to our organization and deliver better execution and long term growth.”

Today at 3:00 pm Paris time, Wavecom management will host a conference call for financial professionals commenting on its fourth quarter and full-year 2003 earnings followed by a formal presentation in Paris for financial professionals only. Visit the Wavecom corporate website: www.wavecom.com investors section to listen to this conference call commentary webcast (in English).

Wavecom will announce its first quarter 2004 results on April 28 at 7:30 am Paris time to be followed by a conference call hosted by management in the afternoon.

* Calculations are based on the following weighted average rates, applied to sales denominated in U.S. dollars, for the periods Oct. 1, 2002 to Dec. 31, 2002 (1 euro = 1.0060 U.S. dollar) and July 1, 2003 to Sept. 30, 2003 (1 euro = 1.1213 U.S. dollar) compared to the period Oct. 1, 2003 to Dec. 31, 2003 (1 euro = 1.1986 U.S. dollar).
** Backlog is calculated based on orders in hand as of December 31, 2003 to be shipped within the next 12 months and was valued at a euro/US dollar exchange rate of 1 euro=1.2557 US dollars as of December 31, 2003