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Sierra Wireless Can Deliver Exponential Growth

May 21, 2014 | About:
Vinay Singh

Vinay Singh

5 followers

Sierra Wireless (SWIR) is headquartered in Richmond, British Columbia, Canada. The company is a multinational wireless communications equipment designer and manufacturer that sells mobile computing and machine-to-machine (M2M) communication products that work over mobile networks.

At present, Sierra Wireless enjoys a diversified customer base with a widespread presence across markets and industries such as automotive, transportation, energy, field service, healthcare, industrial and infrastructure.

During the previous fiscal year, Sierra Wireless reported significant growth in revenues and profitability from continuing operations. Revenues jumped to $397.3 million from $333 million during 2011, which is 19.2% year-over-year growth. The company operated on an improved gross margin of 31.5% relative to 30.5% in 2011.

The growth in revenues is primarily due to the $20.1 million contribution from the recently acquired M2M business of Sagemcom coupled with strong growth in PC original equipment manufacturing (OEM) sales.

Sierra Wireless is making exceptional efforts to sustain its competitive advantage in the M2M wireless industry through carefully planned acquisitions and divestitures. The company recently concluded complete disposition of its AirCard Business to NetGear for $138 million in cash.

This enables Sierra Wireless to increase focus on strengthening its core-competences in wireless communication equipment, which will further facilitate the company in securing market leadership and specializing its product portfolio.

Industry Outlook

With the advent of Cloud Computing technology and smartphones, the M2M market has witnessed rapid growth during the last three years. In addition, the growing number of regulatory mandates in favor of M2M technology have further driven M2M-based innovations for use across different applications.

However, lack of technology awareness and the initial high cost associated with the development and deployment of solutions may be slightly hindering the market growth. The Global M2M Market is estimated to grow at an annual growth rate of 22% from 2012 to 2017, with the total revenue grossing up to $1.2 trillion by 2022.

At present, Asia-Pacific is observed to have the highest growth rate, as the APAC M2M connections are expected to reach 116.6 million by 2015 from 20.8 million during 2010. However, it must be noted that China, Malaysia and India are expected to grow at a faster rate relative to the APAC average growth rate.

On the global scale, China and US are tipped to become the largest markets for M2M by the end of 2022.This is mainly due to consistently growing technology awareness coupled with a rapid decline in the availability of human labor, which is needed for the execution of various critical tasks. This further underpins my bullish view on Sierra Wireless, as the company generates the highest percentage of its revenues through the Asia-Pacific region.

Competitive Landscape

At present, in the Wireless M2M Module market Sierra Wireless enjoys the lion’s share of the global market, as it holds 34.4% in market share. This is followed by Gemalto and Telit at around 23.5% and 18.5%, respectively. The remaining market is addressed by NovatelWireless, Option and U-Blox.

Novatel wireless has a growing presence in the Wireless M2M Module market, thought it is relatively smaller than Sierra Wireless. During the first quarter of 2013, Novatel experienced robust growth in both its business verticals. It is noteworthy that Mobile computing and M2M revenues increased sequentially by 18% and 52%, respectively. In addition, during the fourth quarter of the previous fiscal year consolidated revenue also reported a 22% increase.

The company is well positioned to establish itself as a key player in the industry, as it recently launched Mifi 2, which is the first mobile hotspot with a touch screen display and the most feature-rich mobile hotspot in the market.

Relative to Sierra Wireless, Novatel’s market share is much smaller; hence, it does not compete with Sierra in the mainstream. Furthermore, Sierra Wireless has adopted a highly aggressive M&A strategy in order to outcast smaller companies such as Novatel.

Nevertheless, Novatel has now shifted its focus on strengthening its core-competences and innovating through investing heavily in R&D; therefore, I still keep an optimistic view on its stock.

Digi International is another up and coming player in the wireless communications space. The company is completely focused on expanding its footprint in the international wireless space as, it recently initiated strategic partnerships with Freescale and Intel Technology.

It is noteworthy for potential investors that the company has performed consistently over the last few years, as it delivered forty one profitable quarters in a row.

However, in contrast the revenue generated during 2012 declined marginally from the previous year, predominantly due to lower one time project sales and general economic weakness in the European markets. In addition, its “Rabbit” product line, which entered the mature cycle ahead of its time, further contributed to the declining sales.

Nonetheless, the company has now strengthened its portfolio of M2M offerings by adding wireless design services enabling its clients (OEMs) the flexibility to add wireless capabilities to new and existing products and develop cloud enabled services at a more accelerated pace.

Assessment

Sierra Wireless is a market leader in M2M Modules by a considerable margin. As the company is expected to report robust organic growth and form key strategic alliances from time to time, I believe Sierra Wireless is primed for a strong performance in the following quarters.

Since the company divested from the AirCard business, it clearly exhibits its focus on developing and further penetrating the wireless M2M market. With such a focused approach the company will steadily enhance its expertise in order to improve product performance, resulting in a bolstered bottom line.

In my opinion, with the global wireless market poised for exponential growth and well on its way to becoming a trillion dollar market, Sierra Wireless is a worthwhile investment.


Rating: 5.0/5 (1 vote)

Voters:

Comments

1ab74e
1ab74e - 1 month ago

I hope it profits more than 22% Done lost 12%.And seems to fall everyday even more..

1ab74e
1ab74e - 1 month ago

But I will hold SWIR. Think they will rebound next year big.

1ab74e
1ab74e - 1 month ago

But I will hold SWIR. Think they will rebound next year big. LTRX also.

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