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|Sierra Wireless Inc. |(SWIR-NASDAQ) |

|$8.22 | |

NOTE TO READER: ALL NEW COMMENTS SINCE LAST REPORT HIGHLIGHTED.

SWIR’s fiscal year ends on December 31st. All calendar references are to the fiscal year.

Overview

Sierra Wireless (SWIR) is well positioned in the wireless PC modem card business with its Air Card product, which most analysts believe will be an important contributor to growth going forward. An investment decision should depend upon your opinion of Sierra’s continued ability to grow the Air Card business, the effect of growing competition on pricing, and the potential success in the global smart phone market, as well as growing penetration of wireless data solutions. Though the anticipated strength related to the Voq did not materialize, Sierra is extremely well positioned in the EV-DO network rollouts by Verizon and Sprint, and also has a new shot at playing in the GSM universe with its new EDGE card.

|Investment Positives: |Investment Risks: |

|Expected product launches for AirCard and OEM division. |The market for PC modem cards may become more competitive, driving down |

|Many competitors are struggling financially with poor balance sheets |prices for products with little differentiation |

|The market for wireless data communications equipment is still in the early |During the December quarter, SWIR faced competition for CDMA EV-DO AirCards |

|stages and is expected to grow rapidly with the deployment of 3G networks |for the first time. Resulting in a revenue short fall. |

|Sierra Wireless is increasing its exposure to the smart phone market, which |The smart phone market is already fairly saturated with Nokia, Sony-Ericsson,|

|is also rapidly growing and more differentiated than the modem card market |Motorola, Handspring/Palm and others |

| |Voq shipments may remain weak in the near term due to the limited number of |

| |distribution channels. |

| | |

Richmond based Sierra Wireless develops and markets wireless products, including data modems for portable computers, embedded modules for original equipment manufacturers (OEMs), rugged vehicle-mounted modems and mobile phones. Sierra sells to customers such as Verizon, AT&T, Sprint, T-Mobile, Handspring/Palm and others. Its most popular product is the Air Card, which allows portable computers to access the internet over existing wireless phone networks. Sierra Wireless recently announced its first handset, the Voq, featuring the Microsoft Windows operating system, a full keyboard and high-speed data.



Air Card sales have driven growth at Sierra Wireless as wireless data over 2.5G networks has grown in popularity and early indications show a very strong demand for 3G data cards as Verizon’s test markets for EV-DO have shown stronger than expected demand. Sprint’s pending roll out of EV-DO should be another positive. Sierra Wireless has long-term supply agreements with Sprint PCS, AT&T Wireless and Verizon Wireless. Analysts expect the market for PC modem cards to continue its rapid growth as prices for wireless data drops. Bearish analysts believe that there is little differentiation between PC modem cards from different vendors and commoditization will lead to price competition from foreign suppliers. Bullish analysts believe that Sierra’s strong financial position relative to its competitors will enable it to maintain leadership and consolidate the industry, which has already shown signs of doing so with its acquisition of AirPrime. Sierra recently raised cash with a secondary offering, which will be available for further acquisitions.

A potentially significant positive catalyst to modem cards is the launch of true third generation wireless service. Verizon is currently running CDMA EV/DO service in San Diego and Washington DC. This is broadband service, which is likely to drive demand for mobile data services and potentially compete with wireline services such as DSL and cable modems.

Sierra Wireless is in the process of entering the high-end handset market with its release of the Voq Smart phone. Analysts are positive on this strategy as it helps the company to diversify from the more commoditized modem card business into something more differentiated. Although many analysts note that the smart phone market is already very competitive with Nokia, Sony-Ericsson, Motorola, RIM and Kyocera. Some analysts are concerned that consensus estimates for 2004 and 2005 already have assumptions for revenue from this untested product. Also on the handset side, Sierra is the OEM modem vendor for the Handspring Treo 600, which was recently launched with positive reviews. OEM customers are becoming a more significant portion of Sierra’s revenue.

Key Dates

April 18, 2005 Q105 Earnings Release

Consensus: Sales $19 million, EPS $(0.37)

Sales

| | |Annual Estimates | |Quarterly Estimates |

| | |12/2005 |12/2006 | |03/2005 |06/2005 |

| | | | | | | |

|Most Recent Consensus |

| |2004 |2005E |2006E |

|Gross Margin |39.6% |36.2% |38.0% |

|Operating Margin |12.6% |-25.1% |-0.7% |

|Net Margin |11.5% |-22.0% |0.4% |

Earnings Per Share

| | |Annual Estimates | |Quarterly Estimates |

| | |12/2005 |12/2006 | |03/2005 |06/2005 |

| | | | | | | |

Most Recent Consensus | |-0.91 |[pic] |-0.03 |[pic] | |-0.37 |[pic] |-0.25 |[pic] | |Zacks Consensus | |-0.92 |[pic] |-0.06 |[pic] | |-0.37 |[pic] |-0.26 |[pic] | |Zacks Most Accurate Forecast | |-0.70 |[pic] |0.17 |[pic] | |-0.35 |[pic] |-0.27 |[pic] | |

SWIR reported December Quarter EPS of $0.28. One analyst (Pacific International) believes that although Sierra came up short on revenue, lower than expected operating expenses and higher than expected other income allowed the company to meet the EPS estimates.

EPS estimates for 2005 range from a low of $(1.11) (SG Cowen) to $(0.16) (Pacific International) and for 2006 ranges from a low of $(0.48) (Merrill) to a high of $0.75 (Pacific International). The analyst on the low-end for FY2005 (SG Cowen) would continue to avoid the shares given the near-term risks and the uncertainty inherent in a product transition that is at least a year away. The analyst at the low end for FY2006 (Merrill) sees no further financial visibility beyond 1Q05. The analyst on the high-end for FY2005 and FY2006 (Pacific International) believes that the market for Sierra’s product is growing although it did not grow fast enough to prevent near term inventory build.

Target Price/Valuation

Target prices for Sierra Wireless range from $9 (Lehman, US Bancorp, Nesbitt, RBC Capital) to $20 (Pacific International) with an average of $11.00. Most analysts use a forward EPS estimate to arrive at a price target and some adjust for the $4-6 per share in cash. The analyst at the high-end uses a 20x2006 EPS + $5 per share in cash as a valuation metric. One analyst (Pacific International) cautions investors of the near term potential for share volatility, based on the negative guidance given by the company.

Long-Term Growth

Long-term growth estimates for SWIR range from 10% (SG Cowen, Lehman) to 15% (US Bancorp). The market for wireless data equipment is in its early days, with the first large scale wireless networks capable of handling data only being rolled out in the last few years and the faster third generation rollouts still in the very early stages. Once the infrastructure is in place, sales of devices to utilize the high bandwidth capabilities are expected to grow rapidly. With the wireless data equipment industry in its early stages, with numerous competitors producing little or no profits, investors should expect the industry to change as it matures. Over time, this market will resemble something closer to the wireless voice handset market and may even be dominated by some of the same companies. Now that Sierra has both EDGE and EV-DO PC cards that are commercially available, it would expect analysts to see Sierra offer OEM modules in each of these radio technologies at some point next year if demand for high-speed mobile wide-area data service becomes an important competitive differentiator for wireless carriers. With respect to the company’s AirCard division, Sierra anticipates launching a UMTS/HSDPA card in 2H05 and plans to be the first to market with an EV-DO RevA card. While commercial rollouts of network based on either technology are not anticipated till at least 2006, both cards are likely to be backwards compatible to existing networks (GSM/EDGE/UMTS for HSDPA and EV-DO for RevA cards). For its OEM division, Sierra highlighted that it expects a number of potential embedded module opportunities with leading laptop OEMs over 2005. The company is looking to introduce further models that provide connectivity through additional air interfaces. Management highlighted that SWIR expects to provide a HSDPA Voq handset in 1H06. As the market consolidates, winners should emerge, and therefore risks to growth are company specific rather than industry risks. Risks include competing technologies, commoditization of undifferentiated products and financial risks.

Individual Analyst Opinions

POSITIVE RATINGS

Lehman – Stock is rated Overweight with a $9 price target. The analyst believes that loss of Treo sales, Verizon share declines, and limited Voq traction is building solid challenges for SWIR. Analyst however believes that SWIR may be able to gain share at Sprint during the company’s shift to –DO in 2005 and may be the first to –DO Rev in 2006.

Pacific International Sec. – Stock is rated Buy with a $20 price target. SWIR reported weaker than expected revenue for Q4. Analyst believes that the company will be able to secure an OEM supply agreement with at least one such customer in 2005 to complement design wins already announced with Itronix, Panasonic and @Road.

NEUTRAL RATINGS

Harris Nesbitt – Stock is rated Neutral with a $9 price target. Analyst believes that a return to growth for Sierra is likely, given the series of products that are expected to be launched. Analyst however fears that Sierra may never achieve significant penetration of the smartphone market.

JP Morgan – Stock is rated Neutral. Analyst believes that though the company is currently performing very badly, it has new products in the pipeline that could reverse the momentum in 2H05. Analyst however remains concerned with the belief that competitors will not stand still.

National Bank Financial – Stock is rated Sector Perform with a $10 price target. Analyst believes that the loss of the palmOne contract is compounded by lower PC card sales into Verizon Wireless. Analyst however expects that growth should be good as the market is inherently strong and the company will launch a number of new products in the coming quarters.

NEGATIVE RATINGS

Merrill Lynch – Stock is rated Sell. The analyst expects the company to continue to grow its business as new products are expected to be launched in the next few quarters. Analyst lowered rating given the shortfall in PC card sales and increased competition and lost market share in EVDO.

RBC Capital – Stock is rated Underperform with a target price of $9. Analyst believes that while new products may temporarily boost revenues, Sierra may not recover ground lost in EV-DO and UMTS technologies to competitors like Novatel, Option and Sony Ericsson -- despite its proposed 'leapfrog' strategy to HSDPA. Finally, analyst believes the Voq Smartphone will not be successful, and may further compromise Sierra's focus and resources.

US Bancorp – Stock is rated Underperform with a $9 price target. Sierra Wireless is in a product transition stage, as it invests in HSDPA and EV-DO Rev A products. During this period, the analyst expects competition to increase for Sierra’s core products, and anticipates the company losing money for the next several quarters. As such, analyst downgraded the stock and lowered the price target.

NOT RATED

SG Cowen – The analyst believes that a discount to valuation is warranted due to Sierra's prospects of share losses, lower growth, declining ROIC and increased risk as it attempts to diversify into the smartphone market which is already dominated by several large vendors with greater brand recognition and deeper customer relationships.

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March 31, 2005

Research Associate: Sweta Almal, CS, (Hons)

[pic]Research Digest Editor: Ian Madsen, MBA, CFA, Tel:1-800-767-3771 x. 417

imadsen@

155 North Wacker Drive Chicago, IL 60606

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