Wavecom Announces Second Quarter 2008 Financial Results

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

Wavecom S.A. today announced financial results for its second quarter 2008 ending June 30, 2008.

Ron Black, Wavecom Chief Executive Officer, commented: "Our business continues to be confronted by an uncertain economy, particularly in the US where some markets slowed considerably last quarter. At the same time, while our volumes were strong, the product-mix is transitioning from high-priced/low-margin to low-priced/high-margin products that further impacted revenue quarter-on-quarter. Despite these factors the quarter was profitable, the gross margin as percent of sales improved and we generated cash thanks to our attention to expense control."

As announced in a press release today, Wavecom’s board of directors met on July 22, 2008 to activate a share repurchase program.

In millions of euros Under US GAAP Consolidated
Group Results
  Q2 2007 Q1 2008 Q2 2008
Revenues 56.1 38.1 34.9
Gross profit 24.4 19.6 18.3
Operating expenses 19.6 22.7 18.9
Operating income / (loss) 4.8 (3.1) (0.5)
Net income / (loss) 5.0 (2.3) 0.6

Additional information
Operating income / (loss) 4.8 (3.1) (0.5)
Stock based related expenses :
Research and development
Sales and marketing
General and administrative



Amortization expense related to acquisition (0.8) (0.9) (1.0)
Operating income before stock based compensation and amortization expense related to acquisition 6.3 2.6 1.2

Second 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 second quarter 2008 were €34.9 million, declining 38% year-on-year (34% at constant currencies, i.e. using the second quarter 2007 exchange rate for the U.S. dollar to the euro), the continued weak U.S. dollar had a negative impact of approximately €2.3 million. Revenues declined 8% versus first quarter 2008 or 7% at constant currencies. Services revenue accounted for €1.5 million with contribution mainly from Anyware Technologies.

Performances in the regions were mixed: EMEA revenues were flat compared to the previous quarter stopping declines that the region experienced over the last several quarters as our sales efforts are beginning to pay off. The Americas region revenues declined compared to the first quarter 2008 as it continued to face challenges in a difficult macro economic environment with certain sectors, like alarms, having slowed down. Also in the second quarter, the region experienced the end of a project from a large U.S. customer for which new opportunities are being studied. Revenues from the APAC region increased sequentially from the first quarter by 22% as a result of the growing customer base and business activity in recent quarters.

In the second quarter 2008, the breakdown of product revenues by region was as follows: EMEA 56%, Americas 21% and APAC 23%.

Revenues from the top ten customers represented 51% (7 of which were indirect distributor accounts), down compared to the previous quarter which was at 56%.

Backlog : The 12-month product backlog at June 30, 2008 was €30.2 million compared to €37.5 million at March 31, 2008. The decline in backlog is largely coming from the EMEA region as one major customer transitioned away from distribution while new direct orders have not yet been placed. Backlog as of any given date may not be an accurate indicator of sales for any future period.

Gross Margin : For the second quarter 2008 gross profit amounted to €18.3 million, representing 52.5% of sales compared to 51.5% in the first quarter 2008 and 43.4% in the second quarter 2007. The gross margin from products also increased incrementally to 54.7% of sales compared to 52.8% the previous quarter and 46.0% in the second quarter 2007. The high level of gross margin is the result of a product mix skewed to higher margin products during the quarter as well as a favorable downward trend in component prices.

Operating Expenses : Total operating expenses for the second quarter 2008 of €18.9 million declined as compared to the previous quarter of €22.7 million and €19.6 million in Q2 2007. Excluding stock-based related expenses, operating expenses amounted to €18.2 million versus €17.9 million in first quarter 2008 and €18.9 million a year ago. At June 30, 2008, headcount (salaried employees) stood at 493 increasing from 485 at March 31, 2008.

Profit : Operating result for the second quarter 2008 was a loss of €0.5 million, improving from a loss of €3.1 million in the previous quarter. This improvement is mainly due to the fact that last quarter the company decided to cancel a stock option plan which resulted in a significant exceptional change in the first quarter 2008. In the second quarter 2007, Wavecom reported an operating profit of €4.8 million.

The Company reported a net profit of €0.6 million for the second quarter 2008, compared to a net loss of €2.3 million recorded in the previous quarter and a profit of €5.0 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 €1.2 million for the second quarter 2008, compared to €2.6 million for the previous quarter and €6.3 million a year ago.

Balance sheet : Wavecom’s cash and marketable securities position increased quarter-on-quarter to €130.8 million at June 30, 2008 from €127.5 million at March 31, 2008. Net cash (cash and marketable securities less convertible bonds) stood at €50.3 million. Inventory decreased incrementally to €4.3 million compared with €4.9 million the previous quarter. DSOs (Days Sales Outstanding) improved to 59 days compared with 67 days the previous quarter.


Chantal Bourgeat, Wavecom CFO, concluded: "Our financial results reflect the overall uncertainties that our customers face in the current economic environment, resulting in slower than anticipated demand. If this environment continues, we expect the second half of 2008 to remain challenging. As such we will continue to focus on operating efficiency and cost control. Over the last quarter we were encouraged by the number of new design wins in each region that should translate into revenues in the quarters to come. There is also indication of increasing stability in automotive and metering, the two segments we believe are are likely to drive recovery, although the timeframe is still unclear given the economy."

Business Highlights:

Collaboration with EDMI Limited (Singapore Exchange: EDMI) and Wavecom. The two companies have worked together to help establish the Advanced Metering Infrastructure (AMI) in Australia and New Zealand markets.

Wavecom received four M2M Value Chain Enabler Awards, (M2M United) recognizing the contribution of its technology to innovative M2M solutions in water and wastewater, fleet management and location based services.

World’s first Cellular-Satellite hybrid module launched by Wavecom. Wavecom announced a groundbreaking combination of cellular, satellite and GPS technology (select models) on a single device: the Wavecom Q52 Omni Wireless CPU®.

Machine-to-Machine anti-jamming wireless security Plug-In introduced by Wavecom. As wireless M2M (machine-to-machine) products become more and more sophisticated, the data that they generate are increasingly valuable to the enterprises using it. With the Open AT® Security Plug-In, Wavecom launched a software solution which addresses all these concerns.

Tattletale Portable Alarm Systems, Inc. announced it has chosen Wavecom as the single source for cellular wireless technology to enable their pioneering portable alarm systems designed to protect any asset, anywhere in the U.S. or Canada.

Conference Call:

Today at 2:30 p.m. (Paris time) Wavecom management will host a conference call in English reserved for financial professionals commenting on its second 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).

This call will be followed by a presentation to the financial community in Paris by Wavecom management at 4:00 pm.

Conference call replay available until July 25 by dialing-in to the following numbers: +33 (0)1 71 23 02 48 in France, +44 (0)20 7806 1970 in the UK and +1 718 354 1112 in the US with access code: 7060664#.

Wavecom will announce its third quarter 2008 results on October 22, 2008 at 7:00 a.m. Paris time.