Sierra Wireless (SWIR +0.00%) is a pure-play Internet of Things (IoT) specialist that has set its sights on making the most of an emerging market that's set to boom in the long run. The chipmaker has managed to bring its business back on track in recent months, after a flat performance last year.
Sierra reported double-digit revenue growth in the latest quarter that significantly boosted its earnings. But more importantly, the company has now decided to step on the gas and make a bigger dent in the IoT space. Sierra recently announced two new acquisitions -- Numerex and Flow Search Corp. ("FlowThings") -- that could bolster its presence in the IoT space. Let's see how.
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Numerex adds value
Sierra's stock-for-stock deal to acquire Numerex is valued at $107 million. The acquisition will help the company work its way into the fast-growing device-to-cloud solutions market. Sierra believes that the acquisition will increase its recurring revenue from the services business to 10% of annual revenue, as compared to the current share of around 4%. The deal is expected to be completed in January.
Numerex is expected to scale Sierra's subscription business, thanks to the former's existing sales channels and customer base in the device-to-cloud architecture space. Demand for device-to-cloud connectivity is going to rise exponentially over the long run as more devices connect to the internet.
Ericsson, for instance, forecasts that there will be 18 billion IoT devices online by 2022, as the segment clocks an astounding annual growth rate of 21%. These devices will need to securely deliver data to the cloud in order for further processing. Sierra Wireless has already developed a complete suite of solutions that cover hardware, software, and connectivity platforms to securely deliver data to the cloud.
Numerex's margin should also boost performance at Sierra. Numerex's gross margin from its subscription and support business, which supplies 91% of the top line, stood at 57.7% during the second quarter.
By comparison, Sierra Wireless had a lower gross profit margin of 34.5% in its last-reported quarter. So, management has made a smart move: It's acquiring a company with superior margins that also sets it up for a strong long-term performance, thanks to the secular growth in this space.
FlowThings could be another catalyst
Sierra Wireless has also acquired the technology assets of Flow Search, which operates the FlowThings edge and cloud platform. The FlowThings platform enables coordination between different IoT elements such as sensors and information databases. More importantly, it allows for data processing at the source, which leads to rapid flow of information and enables quick decision-making.
This type of cloud computing is technically known as edge computing, which could hit a size of almost $8 billion in 2021, according to MarketsandMarkets.
The company has not revealed any further details about how this transaction could impact its business financially. But Sierra management believes that FlowThings, thanks to its research and development expertise, will be another catalyst for Sierra's device-to-cloud business, helping customers accelerate their time to market in deploying cloud-based IoT solutions.
These latest acquisitions have opened up opportunities that should help Sierra sustain its impressive financial growth.
