Brandon Barker

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    • Thu Jan 3rd 08:54 AM | Rating: 0 0
      Commented on:
      Novatel, Sierra Wireless: Game Over
      Sierra Wireless Raised To Top Pick From Buy By Salman >SWIR

      Last update: 1/3/2008 7:23:19 AM(MORE TO FOLLOW) Dow Jones Newswires January 03, 2008 07:23 ET (12:23 GMT)
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    • Wed Jan 2nd 14:10 PM | Rating: 0 0
      Commented on:
      Novatel, Sierra Wireless: A Seasonal Squeeze?
      As you all likely know, SWIR is on the prowl for acquisition opportunities. They currently have $184.5 million in cash of which only $60-70 million is needed to run the business. Therefore, we can potentially see $124 million being used for acquisition purposes. We can see even more if they decide to issue stock in conjunction with the cash offering as we saw with the Airlink deal. So what can we expect?

      In Dave McLennan's (CFO) presentation at the Lehman conference on Dec. 4th, he mentioned that they are looking at the M2M sector for acquisitions. He said that they have several targets in the pipeline; however, for competitive purposes he was very general in his discussion. He did, however, mention that the acquisition could be game-changing or it could be something on the level of the Airlink acquisition which only cost about $31 million.

      CIBC in a Q3 report discussed the possibility of an acquisition of a company such as Wavecom, a heavy player in the M2M business. This I would categorize as the game-changing type. They also briefly discussed a potential SWIR/Option merger. This on the basis that SWIR has a huge North American presence, while Option has a huge European presence. This too would be a game changer. Whether we give these possibilities credence or not, let's remember that CIBC did purchase 1,900,000 shares of SWIR at $22.40/shr. They did not do so blindingly. I imagine that they have more insight than I do, and I hope they're right. Also SWIR's management seems to have their act together when it comes to making acquisitions. Airlink only cost $31 million; however, it currently produces over $20 million in gross profit. One hell of an acquisition if you ask me.

      I have no idea what their M&A plans are, but I think that we will go up tremendously based upon the existing business. If we add an accretive acquisiton such as discussed, we will all quickly forget about these dire days. Again, I'm not sure why anyone would risk shorting this powder keg, but their short squeeze will make me much more financially stable. I guess we shall soon see who's right!!!

      Take care,

      Brandon
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    • Wed Jan 2nd 14:09 PM | Rating: 0 0
      Commented on:
      Novatel, Sierra Wireless: Game Over
      As you all likely know, SWIR is on the prowl for acquisition opportunities. They currently have $184.5 million in cash of which only $60-70 million is needed to run the business. Therefore, we can potentially see $124 million being used for acquisition purposes. We can see even more if they decide to issue stock in conjunction with the cash offering as we saw with the Airlink deal. So what can we expect?

      In Dave McLennan's (CFO) presentation at the Lehman conference on Dec. 4th, he mentioned that they are looking at the M2M sector for acquisitions. He said that they have several targets in the pipeline; however, for competitive purposes he was very general in his discussion. He did, however, mention that the acquisition could be game-changing or it could be something on the level of the Airlink acquisition which only cost about $31 million.

      CIBC in a Q3 report discussed the possibility of an acquisition of a company such as Wavecom, a heavy player in the M2M business. This I would categorize as the game-changing type. They also briefly discussed a potential SWIR/Option merger. This on the basis that SWIR has a huge North American presence, while Option has a huge European presence. This too would be a game changer. Whether we give these possibilities credence or not, let's remember that CIBC did purchase 1,900,000 shares of SWIR at $22.40/shr. They did not do so blindingly. I imagine that they have more insight than I do, and I hope they're right. Also SWIR's management seems to have their act together when it comes to making acquisitions. Airlink only cost $31 million; however, it currently produces over $20 million in gross profit. One hell of an acquisition if you ask me.

      I have no idea what their M&A plans are, but I think that we will go up tremendously based upon the existing business. If we add an accretive acquisiton such as discussed, we will all quickly forget about these dire days. Again, I'm not sure why anyone would risk shorting this powder keg, but their short squeeze will make me much more financially stable. I guess we shall soon see who's right!!!

      Take care,

      Brandon
      View article »
    • Fri Dec 28th 02:24 AM | Rating: 0 0
      Commented on:
      Novatel, Sierra Wireless: Game Over
      Brian, I appreciate you taking a position and defending your position; however, I think your premise regarding Sierra Wireless is incorrect. Let's address this supposed new competition that you speak about. First off management has readily acknowledged that Gobi can result in new competitors in this PC OEM embedded space. What many short sellers fail to realize, however, is that while PC OEM embedded modules are of value, that value as of now is extremely limited. Why? Well for the 9 months ending September 30th, 2007, PC OEM embedded modules only accounted for 12% of the overall revenue or roughly $36.5 million dollars. What's more important is that these products have a low gross margin (low 20 percent according to management). Non-PC OEM modules accounted for 9% of revenue during this same time, and they have higher gross margins. These non-PC OEM modules are not being threatened by the new Gobi solution because this is a very fragmented market with low volume customers (see listing below). Management believes that there are several opportunities to grow within this area; therefore, I feel that too much emphasis is being placed on PC OEMs and Gobi. Management is confident that their overall OEM business will experience growth in 2008.

      In addition, many short sellers fail to realize the value of the mobile/M2M space. During Q3 these products accounted for 10 million in revenue at a gross margin of 53%. This simply means that for every dollar made in the mobile/M2M space, PC OEM modules have to make roughly 2.4 dollars to equal the underlying value in mobile/M2M. This is huge because SWIR expects tremendous growth in this area. These products have primarily been sold in North America. However, in 2008 they are spreading this portion of their business to Europe and expanding in Latin America. This is a very fragmented industry with no one dominate player; therefore, the prospects of growth here are outstanding. In addition they have M&A plans for this area which should further growth. SWIR has 184.5 million dollars in cash and equivalents with no debt. They are comfortable with 60-70 million to run the business. Therefore, the rest can conceivably be used for M&A activity in this space, and they have voiced their intentions to acquire companies in this space. They were able to purchase Airlink for $31 million in Q2, and it was accretive to earnings in Q2 and in Q3. In fact it accounted for 9.5 million of the mobile/M2M business at that 53% gross margin. If you extrapolate that out, you've got about a yearly $20 million dollar gross profit from a $31 million acquisition. That's quite some acquisition, and I look forward to more acquisitions and future growth.

      Finally we have to review the PC card/USB modem space. Competition in this space is nothing new. Huawei, Pantech, ZTE, Novatel Wireless, Option, etc. are not newcomers to this space. They have been around as long as SWIR has, but SWIR has managed very well. Over the past year, while faced with this competition, ASPs have remained flat. Acceptance is so great that SWIR's component suppliers can't keep up with demand. SWIR earnings estimates are limited in Q4 (to $0.35) due to a lack of component suppliers being able to keep up with demand.

      I don't hold the same overall views for Novatel due to their lack of exposure in the mobile/M2M sector as well as their lack of non-PC OEM customers. However, they maintain that $500 million revenue in 2008 is easily surpassable.

      In summary I find it hard to believe that anyone can justify a drop in SWIR from $28 to single digits based upon the belief that competition in the PC OEM sector will be the downfall of SWIR. This is such a minor portion of their business that it shouldn't make a heck of a lot of news, and dont think that they will go down without a fight. SWIR will likely hit an EPS of $1.15+ this year and $1.50+ in 2008. This for a company with no debt and currently $184.5 million or $5.86 in cash. Hardly a stock that I would short at $15. However, I am not short SWIR, you are. You may end up SOL (short out of luck) if you're not careful. I wish you well , but you may need to come over to the long side :)

      SWIR Non-PC OEMS
      -Cisco
      -Digi
      -Symbol
      -Ericsson
      -@Road
      -Intermec
      -Verifone
      -DriveCam
      -etc......


      Take care,

      Brandon
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    • Fri Dec 28th 01:10 AM | Rating: 0 0
      Commented on:
      Novatel, Sierra Wireless: Game Over
      test
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    • Fri Dec 28th 01:10 AM | Rating: 0 0
      Commented on:
      Novatel, Sierra Wireless: Game Over
      test
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