Wavecom Announces Third Quarter 2004 Results

Issy-les-Moulineaux, France-October 27, 2004

Wavecom SA (NASDAQ: WVCM; Euronext Nouveau March Euronext: AVM; ISIN: FR0000073066), a leader in pre-packaged wireless communications solutions for automotive, industrial and mobile professional applications, today announced financial results for its third quarter ended September 30, 2004.

The company announced on September 9, 2004 that it would exit the handset business and focus on accelerating growth in its vertical applications markets business.

Ron Black, chief executive officer commented, “We have already realized positive results following our decision to concentrate our business focus on the vertical applications markets. Through tighter operating controls, we significantly slowed our cash burn in the third quarter and began to reduce inventories.” Black continued, “With our sales teams and network of value-added distributors singularly focused on generating revenues in automotive, industrial and mobile professional applications, we are making progress to meet our previously-stated goal of returning the company to breakeven within the second half of 2005.”

Third Quarter 2004 Financial Highlights:

All figures are unaudited and reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Condensed consolidated financial tables are provided at the end of this release. It should be noted that following the company’s announcement to exit the telephone handset market in September, 2004 the scope of the company’s business changed thus making comparisons to the same period the previous year not meaningful.

Revenues: Total third quarter revenues were €36.4 million declining 7% from the previous quarter. Foreign currencies had no meaningful impact on revenues as compared to the preceding quarter. Revenues for vertical applications (90% of total) remained flat compared to last quarter due mainly to the seasonally slow sales period during the month of August, particularly in Europe. The major cause for the quarterly revenue decline came from the handset business (10% of total) which decreased 41% from the previous quarter. Sales generated from wireless Personal Digital Assistant (PDA) applications, formerly part of the Personal Communication Device PCD business, have been reported as part of the vertical applications market. The customer portfolio remained balanced with no single customer representing more than 14% of total revenues in the third quarter. The top ten customers combined represented 72% of revenues, nine of which were in the vertical applications market.

Backlog: Backlog as of September 30, 2004 stood at €40 million, flat compared to June 30, 2004. Future orders for vertical applications, including wireless PDAs make up 84% of this backlog.

Gross Margin: Total gross margin was 20% compared to 25% in the previous quarter. The product gross margin was 25% of revenues in the third quarter 2004, below the 30% last quarter. This decline was due mainly to the decision to write-off approximately €4 million related to the excess inventories of products that have reached end-of-life, most of which were destined for the handset market.

Operating results: Total operating expenses for the third quarter were €25.7 million, which included a €5.2 million charge for the restructuring plan announced on January 23, 2004. Total charges relating to this and an earlier restructuring plan were approximately €11.4 million as of September 30, 2004. A further restructuring plan was announced on September 9, 2004, related to the company’s decision to exit the handset business. Most of the charges related to this restructuring plan will be taken in the fourth quarter of 2004. Expenses associated with R&D declined in the third quarter 2004 compared to the second quarter due mainly to headcount and other related cost reductions. G&A also declined as compared to an unusually high second quarter 2004 which was related to an additional provision that was taken for excess office space as well as a non income tax assessment. The company posted an operating loss for the third quarter 2004 of €18.4 million as compared to €26.4 million the previous quarter.

Cash: Wavecom’s cash position was €55 million at September 30, 2004, a decrease of €5.2 million from €60.2 million at June 30, 2004. The company was able to limit the decline in its cash reserves as a result of improved operating performance, particularly in accounts receivable and inventory management.

Business news:

  • Wavecom announced that the WISMO Pac P5186 was chosen by HP for use in its pocket PC-based PDA. The HP iPAQ h6315 is the first wireless PDA targeting mobile professionals that integrates WAN, Wi-Fi 802.11 and Bluetooth technologies. This product is currently available in the U.S.
  • With the addition of the certification on the Sprint network in the U.S., Wavecom technology is now certified on the major U.S. wireless networks for both GSM/GPRS and CDMA. With these certifications, the U.S. market is now fully open to our customers for developing a multitude of M2M and automotive applications with nationwide access.
  • Wavecom also announced its partnership with Plextek, a global design house specialized in the development of wireless products for machine-to-machine applications. Plextek has been certified by Wavecom in the use of its technology. Through joint development Plextek and Wavecom will be able to provide a broader range of products and design services to customers for both organizations.

Conference Call and Presentation to the Paris Financial Community:

Today at 3:00 p.m. Paris time, Wavecom management will host a conference call commenting on its third quarter 2004 results. Visit the Wavecom corporate website: www.wavecom.com investors section to listen to this conference call commentary webcast (in English). This conference call will be followed at 5:30 pm by a presentation to the financial community in Paris.

Wavecom will announce its fourth quarter 2004 results on February 10, 2005 at 7:30 a.m. Paris time to be followed in the afternoon by a conference call hosted by management commenting on the results.

Ordinary and Extraordinary General Shareholders’ Meeting:

An ordinary and extraordinary General Shareholders’ meeting has been scheduled for November 16, 2004. For more information about this meeting, please contact Lisa Ann Sanders, Director of Investor Relations at +33 1 46 29 41 81 or via e-mail at: lisaann.sanders@wavecom.com