Wavecom Announces Second Quarter 2006 Financial Results; Strong Sequential Revenue Growth: + 24% Organic, +77% Including Acquisition; Integration of Acquired Business Ahead of Plan

Wavecom SA (Paris:AVM) (NASDAQ:WVCM)
(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
second quarter ending June 30, 2006.
Ron Black, chief executive officer, commented, "We are extremely
pleased to report Wavecom's strong performance for the second quarter
of 2006, with significant organic growth in our core automotive and
industrial activity on both a quarter-on-quarter and year-on-year
basis. Additionally, integration of the acquired Sony Ericsson M2M
business is ahead of plan. The combination of our organic growth and
the smooth integration of a substantial acquisition are proof points
that demonstrate our ability to deliver on our previously-stated
priorities, including, profitabilty, market-leading growth and
superior customer service."
For comparative purposes, we believe it is important to review
this quarter's results showing the effect of the acquired activity and
reflecting the impact of certain expenses related to stock-based
compensation and certain recognized intangible assets as indicated in
the charts below.

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*T
In millions Historical Historical Historical Acquired Consolidated
of euros Wavecom Wavecom Wavecom Activity* results
Under US GAAP
------------- ---------- ---------- ---------- ---------- ------------
Q2 2005 Q1 2006 Q2 2006 Q2 2006 Q2 2006
------------- ---------- ---------- ---------- ---------- ------------
Revenues 31.2 28.2 35.1 14.8 49.9
------------- ---------- ---------- ---------- ---------- ------------
Gross profit 14.8 15.0 17.3 3.1 20.4
------------- ---------- ---------- ---------- ---------- ------------
Operating
expenses 12.7 14.4 14.3 5.5 19.8
------------- ---------- ---------- ---------- ---------- ------------
Operating
income
(loss) 2.1 0.6 3.0 (2.3) 0.7
------------- ---------- ---------- ---------- ---------- ------------
Net income
(loss) 4.3 0.2 2.6 (2.4) 0.2
------------- ---------- ---------- ---------- ---------- ------------

Additional
information
------------- ---------- ---------- ---------- ---------- ------------
Operating
income
(loss) 2.1 0.6 3.0 (2.3) 0.7
------------- ---------- ---------- ---------- ---------- ------------
Stock option-
related
expenses -- (0.3) (0.4) -- (0.4)
------------- ---------- ---------- ---------- ---------- ------------
Amortization
expense
related to
acquisition -- -- -- (2.2) (2.2)
============= ========== ========== ========== ========== ============
Operating
income
before
stock-option
compensation
and
amortization
expense
related to
acquisition 2.1 0.9 3.4 (0.1) 3.3
------------- ---------- ---------- ---------- ---------- ------------

* Note: The acquired activity (Sony Ericsson M2M business) represents
two months of results, May and June for Q2 2006 and reflects the
impact of amortizing certain recognized intangible assets.
*T

Second 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 and consolidated financial tables are provided at the
end of this release. Wavecom consolidated financials for the second
quarter 2006 include two months of results associated with the
acquisition of certain assets of Sony Ericsson's M2M business unit
which closed on April 26, 2006. Financials for future quarters will be
reported on a consolidated basis only and will not break out the
acquired business.
Revenues: Second quarter 2006 revenues were EUR 49.9 million,
which was an increase of 77% from the first quarter 2006, or 24%
organically, excluding the acquired business. On a year-to-year basis,
revenues increased 60%, or 12% organically. Performance year-on-year
was even better in the core industrial and automotive business (i.e.
excluding handsets), where revenues grew 87%, or 32% organically. The
significant organic growth was largely the result of new customer
programs ramping in the Americas and Asia Pacific and robust add-on
orders from existing customers in the EMEA region.
The breakdown of revenues by region was as follows: EMEA (Europe,
Middle-east and Africa) 55%; APAC (Asia-Pacific) 20%; and Americas
25%. The customer portfolio remained balanced, with the top ten
customers, three of which have come with our acquisition, representing
49% of revenues as compared to 64% in the previous quarter.
Backlog: Our 12-month backlog, on June 30, 2006 stood at EUR 51.6
million, 32% of which comes from the acquired business. The backlog
from the historical Wavecom business at June 30, 2006 was EUR 35.2
million, compared to EUR 38.3 million at the end of the previous
quarter. This reduction was totally associated with our handset
business, for which we have no recognized backlog this quarter. As
such, the core industrial and automotive business backlog was flat
sequentially.
Gross Margin: Gross margin for the consolidated business was 40.9%
of revenues. As previously indicated, the gross margin from the
acquired activity, at 20.9% of sales, was significantly lower than the
historical Wavecom business at 49.3% of sales. The gross margin for
the historical business declined from 53.2% of sales in the previous
quarter mainly due to a significant intellectual property accounting
adjustment made in the first quarter of 2006.
Operating Expenses: Total operating expenses for the second
quarter 2006 were EUR 19.8 million, of which the acquired activity
represented EUR 5.5 million, or 28%. For the historical Wavecom
business, operating expenses increased sequentially in R&D, mainly due
to network certification of our products, and in sales and marketing.
These increases were off-set by a sequential decrease in G&A mainly
due to the fact that there was no longer a bad debt reserve in the
second quarter 2006 as compared to the previous quarter.
As indicated in the table above, during the second quarter 2006
there were a number of accounting charges related to stock option
expenses and our recent acquisition that adversely impacted our
operating result. In accordance with SFAS 141, certain intangible
assets and in-process technology are being identified within the
former Sony Ericsson M2M activity. A complete identification should be
finalized during the second half of 2006. At the current time,
in-process technology has been estimated at EUR 1.4 million which was
expensed in the second quarter 2006, and the acquired intangible
assets have been estimated at EUR 13.7 million, and will be
depreciated over a period of 1 to 4 years, resulting in a depreciation
charge of EUR 0.8 million for the second quarter of 2006.
Profit/(loss): Operating income for the second quarter was EUR 0.7
million. The historical Wavecom business contributed EUR 3.0 million
compared to EUR 0.6 million in the first quarter 2006. The acquired
activity contributed a loss of EUR 2.3 million, including the
previously-mentioned expenses related to the acquisition for the
second quarter of 2006.
Net income for the second quarter 2006 was EUR 0.2 million.
Wavecom recorded a net foreign exchange loss of approximately EUR 0.6
million for the second quarter 2006, compared to a EUR 0.7 million
loss in the previous quarter.
As indicated in the above table, on a non-GAAP basis, which
excludes stock option expenses and expenses related to our
acquisition, the operating income was a solid EUR 3.3 million, with
the historical Wavecom business generating EUR 3.4 million and the
acquired activity having a slight loss of EUR 0.1 million.
Balance sheet: Wavecom's cash position was EUR 37.2 million at
June 30, 2006, decreasing from EUR 59.0 million on March 31, 2006.
This reduction was the result of the EUR 25 million cash payment
related to the acquisition of certain assets of the Sony Ericsson M2M
business unit.
Inventories as of June 30, 2006, including EUR 1.4 million of
finished products from the acquired activity, stood at EUR 6.7,
essentially flat from the previous quarter but declining for the
historical business from the previous quarter.

Business news:

-- Wavecom announced acquisition of NexGen Software S.A. : This
acquisition brings to us an internally-developed TCP/IP
(internet) suite of protocol stacks and internet software
expertise along with a worldwide customer base of over 100. It
represents a strategic acquisition for Wavecom. With it, we
eliminate our reliance on external, third-party, TCP/IP
vendors and further strengthen our already extensive software
expertise.

-- Wavecom announced design win with Peiker Acoustic: Peiker
Acoustic is a tier one supplier to leading German car
manufacturers. In a new design win, Peiker will use Wavecom
technology to equip hands-free embedded phones in German
luxury models.

-- Wavecom announced a line extension of it most popular wireless
CPU (Central Processing Unit): This line extension includes
four versions -- Q24 Classic, Q24 Plus, Q24 Extended and Q24
Auto; targeting a variety of wireless devices. By being
hardware and software compatible with our existing Q24 family,
this new series allows for the seamless upgrade of customer
products and devices, thus saving on new design or re-design
costs.

Further commenting on the state of the business, Ron Black,
Wavecom CEO added, "I am extremely proud of the work our combined team
has done to smoothly integrate the new business, further positioning
us as a leader in automotive and industrial wireless solutions. Our
strong results for the second quarter make us optimistic about the
second half of 2006, although we remain cautious that the traditional
summer slowdown may temper sales somewhat despite our strong backlog."

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 second quarter 2006. A meeting of financial
professionals will be held at 8:30 a.m. in Paris tomorrow, July 28. To
access this call, please use the following numbers: +33 (0)1 55 17 41
49 in France, +44 (0)20 7138 0816 in the U.K. and +1 718 354 1171 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 Q3 2006 results on October 26 at 7:00
a.m. Paris time.

About Wavecom

Wavecom is a worldwide leader in embedded industrial wireless
communication solutions for automotive, machine-to-machine and mobile
professional applications. Wavecom's solutions include the Open AT(R)
software platform encompassing the Wavecom Open AT(R) Operating
System, a wide range of Plug-Ins, the Open AT(R) Integrated
Development Environment (IDE) along with a market-leading range of
Wireless CPUs (Central Processing Units), and an expanding portfolio
of services. These complete embedded solutions enable makers of all
types of machines to development of a new breed of intelligent
wireless applications, without the need of external processors and
other ASICs (Application Specific Integrated Circuits) and components.
Founded in 1993 and headquartered in Paris, Wavecom has
subsidiaries in Hong Kong (PRC), Research Triangle Park, NC (USA), San
Diego, CA (USA), Farnbourough (UK) and Darmstadt (Germany). Wavecom is
publicly traded on Euronext Paris (Eurolist) in France and on the
NASDAQ (WVCM) exchange 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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WAVECOM S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)

Prepared in accordance with U.S. generally accepted accounting
principles.

Three months ended
June 30 March 31, June 30,
2005 2006 2006
----------- ----------- -----------
Euro Euro Euro
Revenues :
Product sales 30,306 27,462 49,187
Services revenue 420 270 216
Licensing revenue 484 484 484
----------- ----------- -----------
31,210 28,216 49,887
Cost of revenues :
Cost of goods sold 16,050 13,066 28,762
Cost of services 334 176 697
----------- ----------- -----------
16,384 13,242 29,459
----------- ----------- -----------
Gross profit 14,826 14,974 20,428
Operating expenses :
Research and development 6,034 5,901 7,901
Sales and marketing 2,910 2,886 3,848
General and administrative 4,513 5,568 5,847
Acquired in process technology - - 1,400
Amortization of acquired
intangible assets - - 775
Restructuring costs (711) - -
----------- ----------- -----------
Total operating expenses 12,746 14,355 19,771
----------- ----------- -----------
Operating income 2,080 619 657
----------- ----------- -----------
Interest income and other
financial income, net 235 321 176
Foreign exchange gain (loss), net 1,981 (682) (647)
----------- ----------- -----------
Total other income (loss) 2,216 (361) (471)
----------- ----------- -----------
Gain before income taxes 4,296 258 186
Income tax expense 21 54 19
----------- ----------- -----------
Net income 4,275 204 167
=========== =========== ===========
Basic net income per share 0.28 0.01 0.01
=========== =========== ===========
Diluted net income per share 0.28 0.01 0.01
=========== =========== ===========
Number of shares used for
computing :
- basic 15,349,945 15,375,468 15,384,077
- diluted 15,491,724 15,782,195 15,790,902
*T

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*T
WAVECOM S.A.

UNAUDITED CONDENSED CONSOLIDATED OPERATING INCOME
(in thousands, except for share and per share data)

Prepared in accordance with U.S. generally accepted accounting
principles.

Three months ended
March
31,
2006 June 30, 2006
Historical Acquired Consolidated
Wavecom Activity results
------- ---------- --------- ------------
Euro Euro Euro Euro
Revenues :
Product sales 27,462 34,413 14,774 49,187
Services revenue 270 210 6 216
Licensing revenue 484 484 - 484
------- ---------- --------- ------------
28,216 35,107 14,780 49,887
Cost of revenues :
Cost of goods sold 13,066 17,124 11,638 28,762
Cost of services 176 697 - 697
------- ---------- --------- ------------
13,242 17,821 11,638 29,459
------- ---------- --------- ------------
Gross profit 14,974 17,286 3,142 20,428
Operating expenses :
Research and development 5,901 6,352 1,549 7,901
Sales and marketing 2,886 3,074 774 3,848
General and
administrative 5,568 4,862 985 5,847
Acquired in process
technology - - 1,400 1,400
Amortization of acquired
intangible assets - - 775 775
------- ---------- --------- ------------
Total operating
expenses 14,355 14,288 5,483 19,771
------- ---------- --------- ------------
Operating income (loss) 619 2,998 (2,341) 657
------- ---------- --------- ------------
*T

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*T
WAVECOM S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share and per share data)

Prepared in accordance with U.S. generally accepted accounting
principles.

Six months ended June 30,
2005 2006
----------- -----------
Euro Euro
Revenues :
Product sales 65,174 76,648
Services revenue 530 486
Licensing revenue 484 969
----------- -----------
66,188 78,103
Cost of revenues :
Cost of goods sold 37,087 41,828
Cost of services 394 873
----------- -----------
37,481 42,701
----------- -----------
Gross profit 28,707 35,402
Operating expenses :
Research and development 11,903 13,803
Sales and marketing 5,958 6,734
General and administrative 9,027 11,414
Acquired in process technology - 1,400
Amortization of acquired intangible assets - 775
Restructuring costs 1,375 -
----------- -----------
Total operating expenses 28,263 34,126
----------- -----------
Operating income 444 1,276
----------- -----------
Interest income and other financial income,
net 489 496
Foreign exchange gain (loss), net 3,428 (1,329)
----------- -----------
Total financial income (loss) 3,917 (833)
----------- -----------
Gain before minority interests and income
taxes 4,361 443
Minority interests - -
----------- -----------
Gain before income taxes 4,361 443
Income tax expense 399 72
----------- -----------
Net income 3,962 371
=========== ===========
Basic net income per share 0.26 0.02
=========== ===========
Diluted net income per share 0.26 0.02
=========== ===========
Number of shares used for computing :
- basic 15,349,945 15,379,790
- diluted 15,446,100 15,781,745
*T

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WAVECOM S.A.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share and per share data)

Prepared in accordance with U.S. generally accepted accounting
principles.

At At
December June
31, 30,
2005 2006
-------- --------
Euro Euro
ASSETS

Current assets :
Cash and cash equivalents 60,663 37,206
Accounts receivable, net 24,271 36,513
Inventory, net 6,448 6,701
Value added tax recoverable 842 452
Prepaid expenses and other current assets 2,741 3,168
-------- --------
Total current assets 94,965 84,040
Other assets :
Long-term investments 3,585 3,581
Other assets 4,146 3,512
Research tax credit 1,529 1,612
Deferred tax assets 9,617 9,617
Intangible and tangible assets, net 6,236 7,199
Acquired intangible assets, net - 13,020
Goodwill - 10,828
-------- --------
Total assets 120,078 133,409
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities :
Accounts payable 24,314 31,124
Accrued compensation 6,732 6,694
Current portion of other accrued expenses 3,831 8,303
Current portion of capitalized lease obligations 303 264
Deferred revenue and advances received from
customers 2,564 1,671
Other liabilities 225 8,075
-------- --------
Total current liabilities 37,969 56,131

Long-term liabilities :
Long-term portion of other accrued expenses 16,775 10,502
Long-term portion of capitalized lease
obligations 94 182
Other long-term liabilities 1,100 943
-------- --------
Total long-term liabilities 17,969 11,627

Shareholders' equity :
Shares, euro 1 nominal value, 15,541,422 shares authorized,
issued and outstanding at
June 30, 2006 (15,531,813 at December 31, 2005) 15,532 15,541
Additional paid-in capital 137,180 137,232
Treasury stock at cost (156,345 shares at June 30,
2006 and December 31, 2005) (1,312) (1,312)
Retained deficit (84,650) (84,279)
Accumulated other comprehensive loss (2,610) (1,531)
-------- --------
Total shareholders' equity 64,140 65,651
-------- --------
Total liabilities and shareholders' equity 120,078 133,409
======== ========
*T

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WAVECOM S.A.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Prepared in accordance with U.S. generally accepted accounting
principles.

Six months ended
June 30,
2005 2006
-------- --------
Euro Euro
Cash flows from operating activities :
Net income 4,275 372
Adjustments to reconcile net income to net cash
provided from
operating activities:
Amortization and impairment of tangible assets 3,935 2,754
Share-based compensation - 663
Loss on sales and retirement of tangible assets 1,117 6
Net increase (decrease) in cash from working
capital items (10,807) 345
-------- --------
Net cash provided (used) by operating
activities (1,480) 4,140
-------- --------
Cash flows from investing activities :
Disposal of long term investments 5,421 4
Purchases of intangible and tangible assets (839) (2,929)
Acquisition of certain assets, net of cash
acquired - (24,628)
Proceeds from sale of intangible and tangible
assets 753 155
-------- --------
Net cash provided (used) by investing
activities 5,335 (27,398)
-------- --------
Cash flows from financing activities :
Principal payments on capital lease obligations (260) (184)
Proceeds from exercise of stock options and
founders' warrants - 62
-------- --------
Net cash used in financing activities (260) (122)
Effect of exchange rate changes on cash and cash
equivalents 490 (77)
-------- --------
Net increase (decrease) in cash and cash equivalents 4,085 (23,457)
Cash and cash equivalents, beginning of period 53,318 60,663
-------- --------
Cash and cash equivalents, end of period 57,403 37,206
======== ========
*T

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*T
WAVECOM S.A.

NET INCOME COMPARISON BEFORE AND AFTER STOCK-BASED COMPENSATION
(in thousands, except share information)

Three months ended
June 30, March 31, June 30,
2005 2006 2006
(In thousands, except per share
data)
----------- ----------- -----------
Euro Euro Euro

Net income 4,275 204 167
=========== =========== ===========

Net income per share
Basic 0.28 0.01 0.01
Diluted 0.28 0.01 0.01

Number of shares used for
computing :
Basic 15,349,945 15,375,468 15,384,077
Diluted 15,491,724 15,782,195 15,790,902

Stock-based compensation
Research and development 30 39
Sales and marketing 63 81
General and administrative 171 279
----------- ----------- -----------
Stock-based compensation total - 264 399
=========== =========== ===========

Net income before stock-based
compensation 4,275 468 566
=========== =========== ===========

Net income before stock-based
compensation per share
Basic 0.28 0.03 0.04
Diluted 0.28 0.03 0.04
*T