Product and market diversification key for growth at Sierra Wireless

Despite a record year for revenue growth in 2007, Sierra Wireless Inc. continues to push product and market diversification to an increasingly competitive market. The Vancouver-based company is forging relationships in Asia for its traditional AirCard products while continuing to build on its newly acquired machine-to-machine product line. "We're seeing our market continue to grow. We're seeing increased demand for our products and our expectations for 2008 is that we can continue to profitably grow our business, and hopefully further diversify our business as well," CFO Dave McLennan told an audience at the CIBC World Markets 2008 Whistler Institutional Investor Conference, last week. In 2007, Sierra Wireless earned a record-breaking $439.9 million in revenue, up 99% from a year earlier. Fourth-quarter results were equally impressive; the wireless data solutions provider earned $135.6 million, up 22% from the Q3 and 98% on a year-over-year basis. "This growth is primarily driven by the fact that wireless operators around the world have deployed, or are in the process of deploying high-speed networks," McLennan said. A small but increasing part of this growth may also be attributed to Sierra Wireless's expansion in the machine-to-machine (M2M) space. Last May, Sierra Wireless acquired AirLink Communications Inc., providing the company with an established product line-up and engineering expertise in the growing M2M space. Fourth quarter sales in this area were up 11% from Q3, contributing approximately $9.5 million and roughly 8% of Sierra's business. "It's an area we intend to invest in and organically push growth as hard as we can with the AirLink acquisition. We're certainly looking at M&A to grow, what is now, a very strong toe-hold in the M2M space," said McLennan. The outlook is promising. Last May AirLink's PinPoint X and Raven X were certified and launched on Verizon Wireless' EvDO network. In December, Sierra unveiled the AirLink Raven XT, a simplified compact version. And earlier this month, Sierra announced shipments of all three products into the European market will begin in Q2 2008. McLennan is optimistic about Sierra's forays in this market, despite its relative rookie status. "This is a fairly new business for us ... and it's a business we really like. The M2M space is big, but it's very fragmented," he explained. "This allows you to focus on some very narrow verticals and dominate on those verticals. It also means that you can have a highly profitable business there as those products tend to be higher gross margin." And the potential for profits is great. Recent data from ABI Research pegged the M2M market at US$1 billion in 2006 and suggest it could grow to US$5.4 billion by 2012. "All of the sectors we compete in are poised for growth," said McLennan, forecasting greater activities in the company's primary product categories, AirCards and embedded modules. McLennan conceded that Sierra's business "is somewhat North American-centric," with approximately 65% of their Q4 sales stemming from the Americas. But the company is starting to attract a more globalized clientele. Last year, "we saw one of our customers (Fujitsu Ltd.) launch a notebook platform incorporating our new HSUPA module in Japan on the NTT DoCoMo network. That was a first for us, to have a presence in Japan," McLennan said. Since then, Sierra has expanded its penetration in the Asia-Pacific market. Last week Sierra announced that NEC Corp.'s LaVie G type J notebook, integrated with a Sierra's HSUPA module, is also available on the NTT DoCoMo network. Fujitsu plans to include Sierra's modules in selected models of their Lifebook notebooks, to be launched later this year. Australian telecommunications giant Telstra Corp. announced last fall that Sierra's AirCards would be used on Telstra's Next G HSPA network. McLennan admitted the market is laden with competition from existing and new entrants, particularly in the PC OEM space. "There's no question that this part of our business is getting more competitive and we do expect to feel some pressure in the second half of the year," he said. "But the good news is we have a very broad set of customers and we have a thriving vertical OEM business right alongside that."

Product and market diversification key for growth at Sierra Wireless

News | February 28, 2008

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