I recently examined the risks and rewards of Sierra Wireless (NASDAQ:SWIR), the machine-to-machine (M2M) module maker which is often called the best "pure play" on the growing Internet of Things (IoT) market.
In those articles, I noted that Sierra is the world's biggest manufacturer of M2M modules, that it expanded inorganically over the past two decades, and that it's still growing rapidly -- with analysts expecting 10% sales growth and 53% earnings growth this year.
But today, I'll focus on five lesser-known facts about Sierra that may change your overall perception of this IoT chipmaker.
1. Its founder was once a wedding photographer
Sierra Wireless was founded by Norman Toms in 1993. But decades earlier, Toms worked as a wedding photographer during college. After graduating, Toms moved on to jobs in the fiber optic and broadband industries.
Toms eventually ended up at Mobile Data International in the late 1980s, where he worked on wireless mobile communications. Motorola acquired MDI a year after Toms started, and he eventually became a VP at Motorola.
2. Sierra Wireless was founded inside PMC-Sierra's offices
Toms and several of his Motorola colleagues eventually left the company to work at MPR Teltech, a division of BC Tel which did consulting work for the cellular industry. Toms also managed the team that developed the cellular digital packet data (CDPD) wireless communications standard, which was used until the early 2000s.
MPR was disbanded in 1992, and part of the unit was spun off as PMC-Sierra. Toms, who noticed the growth potential of the wireless business, lobbied PMC executives to fund a new company called Sierra Wireless. The following year, Toms founded Sierra Wireless in a borrowed space in the back of PMC-Sierra.
PMC-Sierra was eventually acquired by Microsemi (NASDAQ:MSCC) for about $2.5 billion. Sierra Wireless now has a market value of nearly $1 billion -- not a bad valuation for a company started in PMC's back offices.
3. It was once Canada's fastest-growing company
In 1999, consulting firm Deloitte & Touche named Sierra Wireless Canada's fastest growing tech company. But it was bestowed that title right before the dot-com crash.
Sierra's stock hit nearly $80 in mid-2000, but fell below $2 in late 2002 due to plummeting sales and widening losses. That volatility went on for years, as Sierra struggled to time the cyclical demand for its products. But after gobbling up many rival wireless companies -- including AnyData, Maingate, Mobiquithings, GenX Mobile, and GlobalTop's GNSS assets -- Sierra's growth eventually stabilized and its margins expanded.
4. 120 million connected devices
Sierra has shipped over 120 million M2M devices since it was founded. Its devices run on over 80 networks worldwide. The company owns over 400 wireless patents, and it introduced the world's first LTE devices.
Sierra believes that open source platforms and designs will fuel the proliferation of these connected devices. In 2014 it launched Legato, the world's first open-source Linux platform for embedded M2M modules. The following year, it introduced mangOH, an open-source design for IoT devices.
5. It has a close relationship with Qualcomm
Sierra's strategy of developing and buying wireless patents should remind investors of Qualcomm (NASDAQ:QCOM), which adopts a similar strategy with its patent licensing unit. That's why it isn't surprising that the two companies are closely tied to each other.
Sierra acquired Qualcomm's CDMA module business in 2000, which included a series of supply and licensing agreements with Qualcomm. That partnership -- between the world's biggest M2M module maker and the biggest maker of mobile chips -- gives both chipmakers tremendous control over the growing IoT market.
The key takeaways
These five facts should give investors a deeper understanding of Sierra Wireless, beyond its reputation as a "pure play" on the IoT market. I personally like Sierra's business model, but I'm wary of its valuation.
Its P/E of 65 is much higher than the industry average of 27 for communication equipment vendors, and suggests that too much hype about the IoT market is already baked into the stock.