- Sierra Wireless has strong fundamentals and balance sheet.
- Sierra Wireless provides solutions to Cisco, and so it is on track to benefit from the Internet of Things.
- Sierra Wireless' earnings are expected to grow rapidly next year, making it a solid buy on the pullback.
There can't be a better time to buy Sierra Wireless (NASDAQ:SWIR), the chip maker that is on track to benefit from the growth in Cisco's (NASDAQ:CSCO) Internet of Things. Down 20% so far in 2014, Sierra trades at a trailing P/E ratio of just 10. The company reported robust results for the first quarter back in May, with revenue increasing 19.5% to $121.2 million from the year-ago period. In addition, Sierra reported earnings of $0.70 million, as compared to a loss of $1.40 million in the same quarter last year.
Moreover, Sierra Wireless has a solid balance sheet that has no debt. The company has $151 million in cash. At the same time, its earnings are expected to accelerate at a terrific pace. In fact, analysts expect Sierra's earnings to jump 113% next fiscal year. On top of these solid fundamentals, Sierra is in a terrific position to benefit from Cisco's Internet of Things initiative, which is slated to open up a market opportunity of $19 trillion.
Internet on Things to drive growth
Sierra Wireless is a provider of cellular wireless solutions, with a special focus on machine-to-machine (M2M) and connected device markets. M2M is the basis of the Internet of Things, as it connects one object to another. Moreover, Sierra has a client relationship with Cisco, as it had supplied 3G solutions to the networking giant earlier. Now, it looks set to profit from the next generation of connectivity as Cisco is making big moves in the Internet of Things.
Recently, Cisco invested in startups in order to increase adoption of the Internet of Things. As reported by ZDNet:
Network equipment manufacturer, Cisco, has announced that its venture capital arm is boosting its investment in Internet of Things (IoT) startups around the globe by US$150 million.
The company said Cisco Investments would allocate the additional US$150 million over the next two or three years to fund early-stage companies in a bid to help drive innovation in the global startup community.
In a statement, Cisco said the new funding commitment increases its investment arm's "thematic investing" to US$250 million in total, adding to the US$100 million announced earlier this year, that it is driving into the emerging Internet of Everything (IoE) startup sector.
Moreover, Cisco is also making acquisitions in order to strengthen its Internet of Things development team. ZDNet reports:
Cisco's latest Internet-of-Things strategy move comes in the form of an acquisition that appears to be motivated by talent.
The target of the deal is Tail-f Systems, a Stockholm-based provider of multi-vendor network service orchestration solutions for traditional and virtualized networks.
The San Jose-headquartered tech giant plans to merge Tail-f's network service orchestration technology with Cisco's service provider cloud and virtualization portfolio. The plan is automate (and hopefully simplify) provisioning and management for physical and virtual networks.
Clearly, Cisco is making terrific moves into the Internet of Things, and concurrently, Sierra is also shoring up its product development to make the most of this opportunity.
Focus on cutting-edge products
Sierra has strengthened its enterprise solutions business with the acquisition of In Motion Technology. It is also seeing strong revenue from key market segments such as automotive, energy, networking, and mobile computing. In addition, Sierra has bagged a number of new design wins that will fuel its revenue growth in the future.
Sierra has strengthened its overall product position with innovations in 3G and 4G, which will be beneficial for the company as the market transitions from 2G technology to newer platforms. The company's products have performed well in the past, and its new introductions such as the HL line of products is gaining strong momentum in the market.
Keeping in mind the success of its products, the company has invested in the development of its next-generation embedded platform, called Legato. Legato means smooth and connected, and that is exactly what Sierra wants to deliver to developers of connected solutions. Legato is a Linux-based platform that is portable to different hardware platforms, and will take Sierra's embedded application capability to a new level.
Going forward Legato will be pre-integrated on all new smart modules from Sierra Wireless, starting with the AirPrime WP and AirPrime AR Series modules. Management believes that this new platform will help the company capture market share, protect its margins, and drive AirVantage subscription growth. Sierra recently launched Airlink LS300 and GX440 gateway products. The company also sees great opportunity for profitable growth in its recently announced ES440, a gateway product.
In the cloud segment, the company saw solid growth with its AirVantage cloud services. During the first quarter, AirVantage management sales increased significantly. The company expects these numbers to increase further going forward due to growth in the end market.
Sierra has a number of factors on its side. First, it has a strong balance sheet and is cheaply valued. Next, the company is on track to profit from the Internet of Things. Finally, its product development moves look impressive, and should allow it to make the most of the addressable market ahead of it. So, it would be wise if investors consider buying Sierra and a drop in the share price gives them an enticing point of entry.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.