Sierra Wireless bolsters M2M product portfolio with Wavecom acquisition

Sierra Wireless plans to leverage the acquisition of France-based Wavecom to strengthen the Vancouver-headquartered firm's ongoing push into the machine-to-machine (M2M) wireless connectivity space. Sierra Wireless announced earlier this month that it had inked an agreement to purchase Wavecome for about $343 million."Simply put, putting our mobile computing business and 3G embedded module business together with Wavecom's 2G and 2.5G machine-to-machine business really positions us well in a rapidly growing market," Sierra Wireless CFO David McLennan says.According to ABI Research, shipments of wide area wireless connectivity products such as those offered by Sierra Wireless and Wavecom are expected to skyrocket over the next five years. Shipments for mobile computing products and embedded M2M modules hit 46 million in 2007. The research firm estimates growth will be about 36% annually with shipments nearly topping 300 million in 2013.The M2M market isn't new to Sierra Wireless. The company's initial foray into this space began 18 months ago when the company bought AirLink Communications. The acquisition created a solid engineering base as well as customers and revenue on which Sierra Wireless could build. The Wavecom deal will turn the combined entity into the leader for M2M connectivity, and allow the company to capitalize on a growing market.McLennan says the addition of Wavecom to Sierra Wireless will also enable the combined entity to offer a more diversified product portfolio and global customer base. "It really strengthens our European presence. Right now we're doing about 9% of our revenue in Europe and this significantly strengthens our footprint in Europe," he adds.The success of the combined entity is also fairly assured given they both compete in the M2M space and Sierra Wireless is a customer of Wavecom. "So it's not like we're stepping off the curb and getting into a new business," McLennan explains. "We already have a thriving 3G machine-to-machine business and this really just complements that in a business we're very comfortable with."Sierra Wireless is known for its mobile computing AirCard products - referred to in market parlance as the PC OEM space - that give broadband wireless access to a wide range of portable devices including rugged handheld computers and laptops. But this market has changed quite rapidly in a very short period of time as new competitors try to steal market share away from the Vancouver firm. In the not-so-distant past, Sierra Wireless and NovAtel were the dominant players in the mobile computing space, but Qualcomm and Ericsson are making waves with their own products."We've been telegraphing for quite some time that we're facing more competition in the PC OEM space and that really began to manifest itself in Q3 with the launch of Qualcomm's new Gobi platform as well as Ericsson's platform," McLennan explains. He notes that revenue from this product segment will decline as competition heats up.The M2M market is attractive because the margins are high and there is less competition. With profits in the 50% range and less competitive pressure, the combination of Sierra Wireless and Wavecom looks to be a winner with a substantial revenue base. Together the two companies could generate upwards of $750 million in annual revenue.The agreement still needs approval of Wavecom shareholders and French regulators. But McLennan says Wavecom's board of directors will recommend to shareholders to tender their shares to the deal. In addition, Sierra Wireless has secured the support of Wavecom's founding shareholders, representing about 21% of the company's outstanding shares.

Sierra Wireless bolsters M2M product portfolio with Wavecom acquisition

News | December 15, 2008

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