Shares of Sierra Wireless (NASDAQ:SWIR) have shot up 90% so far this year as the company has shown a remarkable turnaround in its financial performance of late. The Internet of Things (IoT) specialist had beaten estimates in the last reported quarter by a comfortable margin, tripling its net income year over year on the back of double-digit revenue growth.
Sierra's OEM (original equipment manufacturer) solutions business played a critical role in its terrific growth last quarter, accounting for more than 80% of its total revenue and showing a 10% year-over-year increase. Investors will now be looking for a repeat performance when the chipmaker releases its second-quarter results after the market closes on Aug. 2. But can Sierra Wireless deliver once again? Let's take a look.
Wall Street's expectations
Wall Street expects Sierra Wireless' second-quarter revenue to jump 9% year over year to $170 million, while earnings per share are expected to rise from $0.20 per share to $0.28 per share over the same period, a 40% jump. Analysts were originally expecting earnings of $0.16 per share on revenue of $155.9 million, but Sierra Wireless scored more design wins than it had originally anticipated during the first quarter, and it completed the acquisition of GlobalTop Technology's global navigation satellite systems (GNSS) business. This encouraged analysts to raise their revenue and earnings estimates in line with the company's guidance.
Sierra Wireless has started gaining traction in fast-growing areas such as low-power, wide-area (LPWA) solutions that could have a big impact on the company's guidance. For instance, the chipmaker is currently engaged in trials for its Cat-M1 LPWA products with telecom carriers across the globe.
Cat-M1 is an IoT-enabled version of LTE connectivity using modules that consume less power so that they can last for years, requiring very little maintenance. Not surprisingly, demand for such products will increase rapidly as IoT adoption gains steam. Machina Research forecasts that LPWA connections could grow from just 59 million last year to 3 billion in 2025.
Sierra Wireless could make a dent in this market as its Cat-M1 LPWA platform has already been approved by some telecom carriers, and is currently undergoing testing with two more operators in Australia. A potential design win would boost the company's guidance for the third quarter, though investors shouldn't forget that the recent acquisition of GlobalTop's GNSS business could also give it a shot in the arm.
Sierra is currently integrating the GNSS business into its own operations. It has started cross-selling GlobalTop's products to its own customers, which could be a big deal given the potential application of these chips in vehicle tracking and telematics.
Now, Sierra counts Volkswagen as a customer for its high-speed cellular modems. The German auto giant will start deploying the chipmaker's solutions in its connected cars from next year, which means that Sierra has ample time to integrate GlobalTop's GNSS chip into its own platform.
Currently, analysts expect that Sierra's third-quarter revenue will grow just under 11% year over year to $170 million. Meanwhile, its earnings are estimated to jump from $0.13 per share in the prior-year period to $0.24 per share, an 85% jump. By comparison, the company is expected to post higher earnings on an identical revenue estimate during the second quarter. This indicates that there is a good chance that Sierra Wireless could give better guidance, provided its design win activity remains strong and its margins remain stable.