Uneven revenue from Sierra Wireless Inc.'s (NASDAQ:SWIR) automotive segment has caused investor angst recently. But with the help of a new partnership in China, it's evident that the Internet of Things pure play is working hard to ensure that won't be an issue in the future.
On Wednesday, Sierra Wireless announced that Shanghai-based connected car solutions company PATEO has selected Sierra's AirPrime AR Series modules to enable cellular connectivity for its telematics units being installed in vehicles for the China market. In fact, Sierra Wireless says its automotive-grade modules began shipping to PATEO in the first quarter of 2016, and the first deployment of PATEO's telematics units is in platforms from Chinese automaker Geely Automobile (NASDAQOTH:GELYF).
To be fair, investors will need to wait until Sierra Wireless reports second-quarter results early next month before we have a clearer picture of the impact this deal will have. But for perspective, last week Geely revealed that total vehicle sales volume in the first half of 2016 was 280,337 units, up roughly 11% year over year. And Geely is targeting full-year sales volume of 600,000 units in 2016, which would mark a healthy 18% increase over 2015.
Depending on how many of those units are set to contain Sierra Wireless' technology, it could go a long way toward smoothing out the small company's often volatile quarterly sales -- and that's not to mention its impending inclusion with any other Chinese automakers whose business PATEO has won.
Last November, for example, Sierra Wireless stock plunged in part because of a shift in the timing or orders from a single unnamed automotive customer. Though that wasn't technically lost business, as the customer was merely adjusting its order cycle to better align with demand, Sierra Wireless was still referencing that shift this past February as its fourth-quarter 2015 revenue fell short of expectations.
And most recently, when shares skyrocketed after Sierra Wireless posted slightly better-than-expected first quarter results in early May, expected softness from certain automotive customers within its OEM Solutions segment -- where quarterly revenue declined 9.1% year over year, to $120.9 million -- remained one thing holding it back from exceeding Wall Street's expectations on a much more significant scale.
That's not to say this is the first recent effort we've seen from Sierra Wireless to bolster its automotive business. Just last month, Sierra Wireless lauded a new partnership with car software specialist Movimento Group to provide automotive original equipment manufacturers with the first commercially available cloud-based platform to streamline vehicle software installation and updates. Keeping in mind that industry research firm IHS recently predicted that the majority of automakers would introduce some sort of over-the-air software update solution to their vehicles in the next three to five years, Sierra Wireless and Movimento have a chance to ensure that their early solution will play a foundational role in that transition.
In the near term, however, Sierra Wireless investors should be able to enjoy the first fruits of new automotive design wins such as the one it just secured with PATEO. As these wins contribute to Sierra Wireless' efforts to resume more steady, profitable growth going forward, I continue to believe the stock has plenty of room to rise from here.