Please ensure Javascript is enabled for purposes of website accessibility

5 Things You Didn't Know About Sierra Wireless, Inc.

By Leo Sun - Jul 17, 2017 at 1:24PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Check out these five lesser-known facts about this “pure play” on the IoT market.

I recently examined the risks and rewards of Sierra Wireless (SWIR 0.20%), 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.

A graphical depiction of a semiconductor.

Source: Getty.

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 (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.

A graphical depiction of the Internet of Things.

Source: Getty.

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 (QCOM 3.14%), 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.

 

Leo Sun owns shares of Qualcomm. The Motley Fool owns shares of and recommends Sierra Wireless. The Motley Fool owns shares of Qualcomm. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Sierra Wireless, Inc. Stock Quote
Sierra Wireless, Inc.
SWIR
$30.75 (0.20%) $0.06
QUALCOMM Incorporated Stock Quote
QUALCOMM Incorporated
QCOM
$146.99 (3.14%) $4.48
Microsemi Corporation Stock Quote
Microsemi Corporation
MSCC

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
373%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.