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Wavecom Announces First Quarter 2006 Financial Results


Achieves profitability at both the operating and net level

Issy-les-Moulineaux, France - April 27, 2006
Wavecom SA (NASDAQ: WVCM; Euronext Eurolist compartment B: AVM; ISIN: FR0000073066), a leader in pre-packaged wireless communications solutions for automotive, industrial (machine-to-machine) and mobile professional applications, today announced financial results for its first quarter March 31, 2006.

Ron Black, chief executive officer, commented. “The first quarter of 2006 has been an exciting one for Wavecom as we announced the acquisition of Sony Ericssson’s M2M business and our next generation product, the first single-component Wireless Microprocessor. We believe that these developments will give Wavecom a distinct advantage and position us for industry leading growth and profitability. In addition, we are proud to continue to demonstrate our commitment to being a technology and strategic leader in the industrial and automotive wireless marketplace.”

First Quarter 2006 Highlights:

All figures are unaudited and reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP) unless otherwise noted. Condensed consolidated financial tables are provided at the end of this release. Wavecom financials for the first quarter 2006 do not include any results associated with the acquisition of certain assets of Sony Ericsson’s M2M business unit which was announced on March 20, 2006 and closed on April 26, 2006.

Revenues: First quarter 2006 revenues were €28.2 million, which was a decrease of 8% from the fourth quarter 2005. This quarter-on-quarter decline resulted from no handset customer sales this quarter, as well one of our key customers in Europe entering into court-supervised reorganization in February 2006. On the positive side, the Americas’ region performed particularly well, having increased its revenues 33% over the previous quarter, as most major North and South American carriers have certified Wavecom products.

Revenues from our core vertical markets business represented 98% in the first quarter, while licensing and services represented 2%. The breakdown of revenues by region was as follows: EMEA (Europe, Middle-east and Africa) 66%; APAC (Asia-Pacific) 21%; and Americas 13%. The customer portfolio remained balanced, with the top ten customers, six of which are distributors, representing 64% of revenues, as compared to 59% in the previous quarter.

Backlog: Excluding orders related to the Sony Ericsson acquired business, backlog on March 31, 2006 stood at €38.3 million, having declined slightly compared to €39.1 million at the end of the previous quarter.

Gross Margin: Gross margin was 53.1% of revenues, compared to 48.5% for the previous quarter. The first quarter 2006 was positively impacted by a decrease of the intellectual property rights (IPRs) accruals following an in depth analysis prepared for the 2005 closing of the probable remaining liabilities. In future quarters, the improvement of gross margin related to this item in accruals accounting should be much lower.

Operating Expenses: Total operating expenses for the first quarter 2006 were €14.4 million compared to €14.0 million in the fourth quarter 2005. Operating expenses in the first quarter 2006 for R&D and Sales & Marketing declined by 9.5% and 4.1% respectively. G&A expenses increased 27.4% compared to the fourth quarter of 2005, mainly the result of an increase in accrual for bad debt as there is risk of non payment from two Asian customers.

Profit: Operating income for the first quarter was €0.6 million compared to €0.9 million of operating profit in the fourth quarter 2005. Net income for the first quarter 2006 was €0.2 million, or €0.01 per share, as compared to €1.4 million, or €0.09 per share, in the fourth quarter 2005. Wavecom recorded a net foreign exchange loss of approximately €0.7 million for the first quarter 2006, compared to a €0.2 million gain in previous quarter.

The first quarter 2006 income includes a non-cash expense of €263 thousand related to stock-based compensation as required by implementation of SFAS 123. Stock-based compensation was not required to be expensed under US GAAP for the year 2005. Accordingly, in order to compare the EPS, our earnings per share before stock-based compensation for the first quarter 2006 would have been € 0.03 on a fully diluted basis, as compared to €(0.02) for the first quarter 2005 and €0.09 for the fourth quarter 2005. A comparison of the net income/loss before and after stock-based compensation is provided in the accompanying financial tables.

Cash: Wavecom’s cash position was €59.0 million at March 31, 2006, decreasing from €60.7 million on December 31, 2005. This reduction was mainly the result of payment related to some 2005 accruals. Our operating performance improved, as inventory and accounts receivables decreased slightly quarter-on-quarter.

Business news:

* Wavecom acquired certain assets of Sony Ericsson’s M2M business unit.
Wavecom management believes that the acquisition of one of its major competitors positions it positively for future growth by establishing the largest R&D team in the industry, giving it the premiere position as provider of wireless solutions to the automotive industry worldwide and finally paving the way to greater technology standards for wireless machine-to-machine communication. This acquisition was financed by Wavecom’s cash reserves and will cost up to €32.5 million. The transaction closed on April 26, 2006.

* Wavecom announced the introduction of the Wireless Microprocessor,
combining high performance embedded processing and wireless connectivity in a single surface-mount component. In combination with Wavecom’s Open AT® software suite, it provides the lowest total cost of ownership for any industrial wireless machine by reducing the overall number of components and shortening the time to market.

Outlook: We expect the integration process of the Sony Ericsson M2M business unit to take from two to three quarters to complete. Given a number of factors, both positive and negative, that will impact the financial performance of the combined, entities; at this time the Company will not be providing quantitative guidance for the remaining three quarters of 2006 at this time. Management does however expect the acquisition to be accretive in 2007.

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 2006. To access this call, please use the following numbers: +33 (0) 71 23 08 27 in France, +44 (0) 20 7806 1951 in the U.K. and +7 718 354 1112 in the U.S. Visit the Wavecom corporate website: investors section to listen to the conference call commentary webcast (in English).

Wavecom will announce its Q2 2006 results on July 27 at 7:00 a.m. Paris time.

Financial tables

About Wavecom :

Wavecom is a leading worldwide leader in pre-packaged wireless communication solutions for automotive, industrial and mobile professional applications. Wavecom’s solutions include all the software and hardware elements that are necessary to develop truly innovative wireless devices, as well as the development tools and services needed to bring them to market quickly and easily.

Founded in 1993 and headquartered near Paris in Issy-les-Moulineaux, Wavecom has subsidiaries in Hong Kong (PRC), San Diego (USA), and Darmstadt (Germany). Wavecom is publicly traded on Euronext Paris (Eurolist) in France and on the NASDAQ (WVCM) in the U.S.

This press release contains forward-looking statements that relate to the company’s future business performance, operating expenses and financial results and objectives. Such forward-looking statements are based on the current expectations and assumptions of the company’s management only and involve risk and uncertainties. Potential risks and uncertainties include, without limitation, whether the company will be commercially successful in implementing its strategic reorientation, whether there will be continued growth in the vertical markets and demand for the company’s products, an unanticipated decrease in orders from one of the company’s principal customers or customer cancellation or scale-down of a major project, the company’s reliance on a single contract manufacturer in China for all production requirements, dependence on third parties, changes in foreign currency exchange rates, new products or technological developments introduced by competitors, customer and supplier concerns regarding the company’s overall financial position, and risks associated with managing growth. Unfavorable developments in connection with these and other risks and uncertainties described in the Company’s reports on file with the Securities and Exchange Commission could cause the company to not achieve the anticipated or targeted performance or results. As a consequence, the Company’s actual performance and results may be materially different from those expressed by the forward-looking statements above.


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