What happened
Shares of Internet of Things (IoT) connectivity provider Sierra Wireless (SWIR) plunged Monday, trading down by 9.2% as of 2:17 p.m. ET.
That big move came despite a lack of any specific news relating to its business. This may be a case of a large investor or investors taking profits in the small-cap stock. Sierra, with a market cap of $812 million, has logged handsome gains this year, defying the broader market's swoon and the tech sector's even-steeper plunge.
So what
Up until Monday, Sierra Wireless had risen more than 40% this year. With Sierra up so much and other tech stocks down so much, it appears some shareholders may be locking in their gains from Sierra and redirecting those profits to more beaten-down names. Sierra has certainly surprised this year, with much of its appreciation occurring on the heels of its two earnings reports. Last quarter, the company's revenue of $173 million beat expectations by nearly $30 million -- 20% higher than the consensus estimate.
That top-line beat was due to the rapid rise in revenues for its Internet of Things solutions, which grew more than 79% year over year. This makes sense. Given the impacts of COVID-19, labor constraints, and rising wages, as well as recent advances in artificial intelligence applications, the Internet of Things seems to be taking off in a big way this year as businesses look to automate as much as possible and glean greater quantities of useful data from their operations. While consumer-facing chipmakers have declined, it appears IoT and Industrial IoT solutions remain strong, at least for now.
Of course, while revenue growth is nice, Sierra Wireless still isn't profitable on a GAAP basis; it logged a $9.5 million operating loss last quarter. Given the current uncertainty around interest rates and inflation, some investors may be taking chips off the table ahead of its next report, due out on Aug. 11.
Now what
Sierra Wireless certainly plays in an interesting field, but its lack of profitability reflects how competitive the end device module and router business is. While Sierra constructs original whole devices, the semiconductor designers that make IoT chips themselves seem like safer bets these days, given that they are generally profitable, pay dividends, and repurchase their shares.
One such name is NXP Semiconductors (NXPI -1.63%) which reports after the bell Monday. Those interested in Sierra or the IoT hardware space more broadly should tune in to hear management's commentary on current demand trends.
