Please ensure Javascript is enabled for purposes of website accessibility

This Small-Cap Tech Company Is Quietly Ushering in the Internet of Things

By Chris Neiger - Apr 9, 2014 at 8:05PM

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

Sierra Wireless is already a leader in machine-to-machine tech, and it's diving even deeper.

This article was updated on Sept. 11, 2015.

It's not easy finding stocks that are on the cutting edge of their industry, publicly traded, and poised for more growth. Sierra Wireless (SWIR 2.57%) is a quiet tech company that's leading the machine-to-machine communication market, also called the Internet of Things, and its upside can't be overlooked.

Although Sierra has been on Wall Street since 2000, its business has shifted since then, with some of its technology now powering innovations in Tesla's (TSLA -0.32%) Model S. And as the company's focus has shifted over the years, so has its potential. 

So, Sierra does what exactly?
Let's keep this simple. If the Internet of Things, or IoT, is the connection of everyday objects to the Internet, then Sierra Wireless is the company that makes that connection possible. IoT will allow cars to communicate with each other, vending machines to tell companies when they need to be refilled, and energy systems to manage power usage on their own. Sierra's wireless modules and cloud management services both allow formerly non-connected devices to connect to the Internet and be easily controlled. 

Tesla's Model S is a perfect example of a connected car, in which Sierra provides the 3G-connection module that allows the car's infotainment system to tap into AT&T's wireless network. Tesla can then access data about the car's systems and make upgrades and adjustments based on feedback from the vehicle. Tesla is clearly a leader in automobile connectivity, but it's not the only company moving in this direction. Other car companies such as Ford, Toyota, BMW, and others use Sierra's technology as well.

But cars aren't the only thing Sierra puts its modules into. Nespresso's coffee makers also have Sierra's connected devices, as do energy systems, wireless payment devices, and much more.

The company's goal is to take away all the technical aspects of the connecting devices to the Internet of Things, so that companies can focus on making their products. And Sierra Wireless is in a great position to do it.

The advantages
Right now, Sierra Wireless holds about 34% of worldwide  machine-to-machine (M2M) embedded module revenue. 

And although it has a large IoT reach, the company is still nimble with a market cap under $800 million, $100 million in cash, and virtually no debt. In Q2 2015, Sierra posted revenue of $158 million, up 17% year-over-year.

Even with its strong position in the IoT space, Sierra is trying to build its Internet of Things offerings even bigger.

Last year the company purchased a company called In Motion, which makes rugged in-vehicle mobile routers and a secure platform to manage connected devices. That move allowed Sierra to expand its market share in high-growth, high-value markets such as public safety and commercial fleet connectivity. 

More recently, Sierra purchased Wireless Maingate and Accel Networks. Wireless Maingate adds more managed services to Sierra's device-to-cloud solutions, while Accel Networks' 4G LTE connectivity services will add more subscription-based and reccurring revenue to Sierra's business.

Sierra also just closed on its acquisition of MobiquiThinngs, a European mobile virtual network operator for managed IoT connections. This adds a new IoT platform for Sierra, as well as 75 new customers with a total of 100,000 wireless connectivity subscriptions.

In addition to its acquisitions, Sierra already has an open-source platform called Legato, which allows companies to develop applications for machine-to-machine devices and manage them from Sierra Wireless' cloud. The company also recently released its new  IoT Acceleration Platform, which provides customers with a global multi-operator coverage for Internet of Things connections.

Combining the company's own in-house services with its recent acquisitions should help Sierra hold onto to its strong Internet of Things position.

A few things to consider
Sierra' stock has taken a huge hit this year -- right now, it's down 50% year-to-date -- after making huge gains in 2014. It's worth remembering here that Sierra is a small-cap stock that's betting big on the nascent Internet of Things market. Simply put, this isn't a stock for faint of heart. 

Investors should continue to keep tabs on how Sierra is staying ahead of other M2M businesses, and how that impacts the cost of wireless modules. The company is already steps ahead of the competition and its place as an IoT leader means there's likely lots of opportunity ahead for this company.

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
$23.12 (2.57%) $0.58
Ford Motor Company Stock Quote
Ford Motor Company
F
$12.04 (0.25%) $0.03
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$734.76 (-0.32%) $-2.36
AT&T Inc. Stock Quote
AT&T Inc.
T
$20.78 (-1.00%) $0.21
Toyota Motor Corporation Stock Quote
Toyota Motor Corporation
TM
$156.53 (-1.60%) $-2.55
Bayerische Motoren Werke Aktiengesellschaft Stock Quote
Bayerische Motoren Werke Aktiengesellschaft
BAMXF
$80.90 (2.70%) $2.13

*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
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

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.