- Good quarterly performance is a sign of better things to come.
- Sierra Wireless is well-positioned to benefit from the "Internet of Things" market.
- The company's partnership with Cisco and Philips will prove to be beneficial in the long run.
- Sierra is a great buy at present valuations.
Sierra Wireless (NASDAQ:SWIR) recently reported upbeat quarterly results, and the company's fortunes seem to have turned around nicely. Sierra shares have gained impressively in the past few months, with the stock gaining 38% in the past three months. The company is seeing improvements on all fronts, and has surpassed analysts' estimates. Let's take a closer look at Sierra's earnings and see how it might perform in the future.
A look at the earnings
As reported by Business Wire, the primary points of Sierra's earnings report include the following:
- Record revenue of $135.0 million, an increase of 23.2% compared to Q2 2013.
- Non-GAAP earnings from operations of $3.7 million, an increase of 149% compared to $1.5 million in Q2 2013.
- Non-GAAP EPS of $0.08, an increase of 167% compared to $0.03 in Q2 2013.
Also, operating expenses for the quarter were almost $50 million, up sequentially, while the gross margin for the quarter dipped to 32.2% from 33%. The net earnings were $500,000, i.e. $0.02 per diluted share, compared to a net loss of $0.02 per diluted share in the year-ago quarter. Impressively, the EBITDA more than doubled to $4.1 million from $1.8 million a year earlier.
Opportunities for the future
Sierra Wireless is gaining traction in its primary market segments, including automotive, networking and mobile computing. In the OEM solutions segment, a record number of new designs and strong revenue growth is credited to the company's precise investments in adding sales capacity in important markets, and the enhancement of its product portfolio.
As a result, Sierra expects a growing number of its AirVantage cloud services customers and subscribers to come through its OEM solutions channel. The company witnessed massive increase in sales of 2G, 3G and 4G-enabled wireless modules for energy, industrial, mobile computing, networking and automotive applications in this quarter.
Sierra is entering the "Internet of Things" market with its cloud management services and wireless communication modules. In IoT, the company currently possesses about 34% of the total embedded cellular machine-to-machine module business. Apart from this, networking company Cisco will help bring more devices online, thus leading to higher demand for M2M connectivity solutions that Sierra provides.
Sierra has a long-time relationship with Cisco, as it supplied its modules to Cisco's integrated services routers a couple of years ago. Cisco is now advancing in IoT, thus creating more and more opportunities for Sierra. The more the market in IoT expands, the higher will be the need for Sierra's devices. Sierra has also collaborated with Tech Mahindra, a large global IT solutions integrator, to develop and deploy M2M solutions for customers globally.
A few months ago, Sierra signed a deal with Philips to connect city lighting to the IoT, and this could prove to be beneficial in the long run. The ability to control street lighting can offer more consistent service, more efficient utilization of city funds and a more eco-friendly solution, and this will help Sierra establish its foothold in the market.
Sierra Wireless' acquisition of In Motion Technology and AnyDATA's M2M business has turned out to be very profitable. These acquisitions were made based on the fact that the market for IoT is expanding. In Motion provides mobile enterprise solutions and in-car mobile routers that are incorporated with a superior mobile-optimized security system, while AnyDATA adds M2M embedded modules and modems to Sierra's portfolio, along with its large network and high sales in Korea.
Legato, the company's next-generation Linux-based platform, allows developers to create and run applications faster. Sierra launched its new products like the AirLink LS300 and GX440, based on the Legato platform, which resulted in significant revenue growth in Europe. It also started shipping ES440, a gateway product designed specifically for the enterprise sphere. Sierra is planning to pre-install Legato on all new smart device modules, which will drive the adoption of its products in the long run.
Sierra Wireless looks cheap at a trailing P/E ratio of 10.5. It has a strong balance sheet, with $151 million in cash and no debt. Also, Sierra Wireless' prospects are strong, and given its steady financials, it seems to be a smart investment for the future