Sierra Wireless (SWIR) is a pure-play Internet of Things (IoT) company that has been trying to pivot its business from a hardware-focused model to a software- and services-focused one.

While that shift is showing promising signs in the form of higher margins and recurring revenue growth, the company is also targeting the nascent 5G wireless market to accelerate its turnaround. The IoT specialist has taken the plunge into 5G with a new set of products, and management says that more are on the way.

Let's see what Sierra is doing in 5G, and why the next-generation networking technology may turn out to be a hot catalyst for the chipmaker.

Person holding a 5G smartphone.

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Sierra Wireless' 5G play

At the beginning of August, Sierra Wireless announced that it will be launching "new 5G cellular modules, gateways and routers" in the second half of 2020. Soon after that announcement, the chipmaker announced the commercial availability of 5G embedded modules supporting millimeter wave (mmWave), sub-6 GHz, and LTE (long-term evolution).

mmWave technology is expected to play a critical role in the functioning of 5G networks because of the higher bandwidth availability and faster data transfer rates with speeds over 1 Gbps. 5G networks running on sub-6 GHz frequencies are expected to have broader coverage, but at the cost of lower top speed.

Grand View Research estimates that the demand for 5G chipsets could grow at a compound annual rate of 63.4% through 2027. The firm estimates that demand for chips combining sub-6 GHz and mmWave into a single module will clock a high rate of growth over the forecast period, indicating that Sierra is looking to tap into a potentially lucrative space.

More importantly, Sierra's foray into 5G seems to have gotten off to a good start, at least going by management's commentary during the last earnings conference call. The company says that it has already scored as many as 15 design wins for its 5G products, which is impressive considering that it has yet to launch its full suite of products.

For instance, Sierra says that original equipment manufacturers (OEMs) such as Allied Telesis, Dynabook, LiveU, NEC Personal Computers, and Panasonic are already using the company's modules in their 5G platforms. It remains to be seen how many of the design wins Sierra can convert into commercial contracts, but the initial developments seem promising.

How long before this catalyst kicks in?

Sierra management believes that its 5G moves will start bearing fruit in 2021, as it is looking at a phased launch of its products in the international markets. The company expects Europe to get its first 5G modules in the current quarter, while a North American launch is scheduled for the fourth quarter.

Sierra also intends to refresh its Airlink industrial enterprise gateway products with 5G devices next year. Shipments of 5G-powered industrial IoT devices are expected to hit 189 million units by 2030 according to third-party estimates. Additionally, the 5G industrial IoT market is anticipated to clock a compound annual growth rate of nearly 27% over the next decade, opening yet another long-term opportunity for the company.

As such, it wouldn't be surprising to see Sierra Wireless turn into a hot 5G stock once its design wins start getting deployed by OEMs in 2021 and drive up the company's revenue, which is why it could pay handsomely to keep an eye on this chipmaker.