Wavecom Announces First Quarter 2008 Financial Results

Issy-les-Moulineaux, France-April 23, 2008

Wavecom S.A. today announced financial results for its first quarter 2008 ending March 31, 2008.

Ron Black, Wavecom Chief Executive Officer, commented: "During the first quarter of 2008, we made a key strategic acquisition of Anyware Technologies, a dynamic company recognized for creating advanced software solutions that optimize enterprise processes. Its M2M-specific solutions perfectly complement Wavecom's secure and scalable Intelligent Device Services (IDS) platform, with the combination creating the most advanced end-to-end software solution in the industry. This acquisition is a significant milestone in the implementation of our strategy with a key focus on the development of services." He added, "Facing an overall uncertain global economic environment our sales teams have redoubled their efforts to bring in new design-wins that should stimulate sales."

In millions of euros Under US GAAP Consolidated
Group Results
  Q1 2007 Q4 2007 Q1 2008
Revenues 48.1 45.7 38.1
Gross profit 20.5 23.2 19.6
Operating expenses 19.0 20.9 22.7
Operating income / (loss) 1.6 2.3 (3.1)
Net income / (loss) 1.9 7.1 (2.3)

Additional information
Operating income / (loss) 1.6 2.3 (3.1)
Stock based related expenses (0.7) (1.7) (4.9)
Amortization expense related to acquisition (1.1) (0.8) (0.9)
Operating income before stock based compensation and amortization expense related to acquisition 3.4 4.8 2.7

First Quarter 2008 Highlights:

All figures are unaudited and reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP), unless otherwise noted. Condensed and consolidated financial tables are provided at the end of this release.

Revenues: Revenues for the first quarter 2008 were €38.1 million, declining 21% year-on-year (15% at constant currencies, i.e. using the Q1 2007 exchange rate for the U.S. dollar to the euro), as the weak U.S. dollar had a negative impact of approximately €3 million. Revenues declined 17% versus fourth quarter 2007 or 15% at constant currencies. Services revenue accounted for €1.2 million and was mainly generated by two months of revenues from Anyware Technologies.

As a result of the uncertain worldwide economic situation, sales have slowed in all of our regions as some customers have pushed out new product development plans and are taking a conservative position on placing orders. In addition, one major project from a US customer came to an end in the 3rd quarter of 2007 which had been part of the revenue in Q1 2007.

In the first quarter 2008, the breakdown of product revenues by region was as follows: EMEA 52%, Americas 31% and APAC 17%.

Revenues from the top ten customers represented 56%, seven of which were (indirect) distributor accounts in Q1 2008, flat to the previous quarter.

Backlog: The 12-month product backlog at March 31, 2008 was €37.5 million compared to €41.7 million at December 31, 2007. The reduction of backlog is largely coming from the US as some large customers are keeping their inventories to a minimum. Backlog as of any given date may not be an accurate indicator of sales for any future period.

Gross Margin: For the first quarter 2008 gross profit amounted to €19.6 million, representing 51.5% of sales compared to 50.7% in the fourth quarter 2007 and 42.7% in Q1 2007. The gross margin from products also increased incrementally to 52.8% of sales compared to 51.6% the previous quarter and 45.6% in Q1 2007, mainly explained by a continued positive operational performance.

Operating Expenses: Total operating expenses for the first quarter 2008 of €22.7 million increased as compared to the previous quarter of €20.9 million and €19.0 million in Q1 2007. In order to reduce the cost structure for the future, the Board of Directors decided to propose to the beneficiaries of one stock option plan to cancel the grants. Consequently, under SFAS123R, this cancellation (which was approved by a majority of the beneficiaries of the plan) has resulted in additional expenses in the first quarter of 2008 bringing the stock-based related expenses to a total €4.9 million versus €1.7 million in fourth quarter 2007. Excluding stock-based related expenses, operating expenses amounted to €17.9 million versus €19.2 million in fourth quarter 2007 a reduction of 7% and €18.3 million a year ago. At March 31, 2008, headcount (salaried employees) stood at 485 increasing from 418 at December 31, 2007, due mainly to the acquisition of Anyware Technologies.

Profit: Operating result for the first quarter 2008 was a loss of €3.1 million, decreasing from a €2.3 million profit in the previous quarter. This decline is mainly due to the additional stock based related expenses. In Q1 2007, Wavecom reported an operating profit of €1.6 million.

The Company reported a net loss of €2.3 million for the first quarter 2008, compared to €7.1 million of profit recorded in the previous quarter and a profit of €1.9 million for the same period the year before.

As shown in the above table (on page one), on a non-GAAP basis, excluding stock-based related expenses and expenses related to our acquisitions, the operating income was €2.7 million for the first quarter 2008, compared to €4.8 million for the previous quarter and €3.4 million a year ago.

Balance sheet: Wavecom's cash and marketable securities position decreased quarter-on-quarter from €139.3 million to €127.5 million at March 31, 2008 mainly due to the acquisition of Anyware Technologies in January 2008. Inventory decreased incrementally to €4.9 million compared with €6.0 million the previous quarter as the Company continues to carefully monitor its inventory levels to meet customer demand. DSOs (Days Sales Outstanding) were 67 days compared with 58 days the previous quarter mainly due to the timing of the sales.


Chantal Bourgeat, Wavecom CFO, concluded: "This quarter we had a significant one-time additional expense related to the cancellation of one stock option plan, aimed at reducing expenses for the future. Given the macro economic environment, we will continue to focus on cost control. We are seeking strategic acquisition opportunities in order to enhance our product and services offer to meet future market evolution, and our solid balance sheet puts us in a position to be able to move quickly once identified candidates are evaluated."

Business Highlights:

Wavecom S.A. acquired Anyware Technologies, an industry leader in machine-to-machine (M2M) client-server software solutions located in Toulouse, France. Anyware Technologies is a recognized leader in developing M2M software solutions for customers who use wireless technology to enhance business processes.

Wavecom and ORBCOMM, announced a joint marketing agreement whereby the two companies will work together to address the growing demand for devices that combine both satellite and terrestrial wireless communications. This agreement allowed us access technology behind a groundbreaking new device that combines cellular, satellite and GPS technology (select models) on a single device: the Wavecom Q52 Omni Wireless CPU®. Based on Wavecom Wireless Microprocessor® technology, the Q52 Omni embodies unprecedented integration by embedding control of all three technologies on a single processor, enabling significant cost savings over existing multiprocessor solutions. The powerful, built-in ARM9 processor and included Open AT® Software Suite allow developers to develop, embed and execute their applications directly on the device.

Wavecom received the distinction of being awarded the 2008 trophy for innovation at a ceremony organized by the group Automotive Design (ADN) Center of PSA in Vélizy (France), March 10. This year's award for innovation was given to Wavecom in recognition of its revolutionary inSIM® embedded SIM concept.

Conference Call:

Today at 3:00 p.m. (Paris time) Wavecom management will host a conference call in English reserved for financial professionals commenting on its first quarter 2008 results. To access this call, please use the following numbers: +33 (0) 1 70 99 4295 in France, +44 (0) 20 7806 1966 in the U.K. and +1 718 354 1385 in the U.S. Visit the Wavecom corporate website: www.wavecom.com investors section to listen to the conference call commentary webcast (in English).

Wavecom will announce its second quarter 2008 results on July 23, 2008 at 7:00 a.m. Paris time.

Financial tables