Philips' CityTouch powers 42,000 lights in London. Source: Philips.

One of the leaders in machine-to-machine wireless communications, Sierra Wireless (NASDAQ:SWIR), made a deal few weeks ago with Philips to connect city lighting to the so-called Internet of Things -- and the partnership could significantly strengthen Sierra's dominance in the wireless module space.

Bringing cities online
Sierra Wireless will provide the wireless connection modules for the company's CityTouch light management service. Cities around the world are upgrading outdated systems like waste management, parking, and lighting by hooking them into the Internet in order to manage them more efficiently.

Intel is connecting the city of San Jose. Source: City of San Jose.

The city of San Jose recently teamed up with Intel (NASDAQ:INTC) to do just that. Intel will use sensors to measure pollutants in the air, improve traffic patterns and other utility improvements.

The collaboration between Intel and San Jose is expected to help spur economic growth in the city and help create 25,000 clean technology jobs. Cisco Systems has said that connecting the public sector to new technologies could bring $4.6 trillion in cost savings over the next decade. That savings isn't lost on other countries either. China is currently leading the world in its smart city ambitions.

Talking about the CityTouch deal, Sierra said its wireless communication modules will allow outdoor LED city lights to be remotely controlled individually or in groups, provide lighting statuses and auto-notification of light failures. The combination of LED lighting tech and connectivity will result in up to an 80% energy savings.

But why does this matter for Sierra?

Foolish thoughts
At first glance, this doesn't sound extremely exciting, but investors need to consider the scope of Philip's CityTouch system and the future of connected cities.

CityTouch currently powers the lighting in London, Prague, and Rotterdam. In London there are 42,000 lights connected to CityTouch, and the city will use the system for at least the next 25 years.

Sierra's AirPrime wireless modules. Source: Sierra Wireless

The size and scale of CityTouch's reach matters for Sierra Wireless because as Philips upgrades technology and adds new connected cities, it's Sierra's Wireless' modules they'll be using.

Philips sees the new partnership between the two companies as a long-term relationship, with the general manager of Philips CityTouch recently saying, "The more we talked with Sierra Wireless, the more confident we became that this company really understood what we needed to not only build and launch a new generation of CityTouch Ready outdoor lighting fixtures, but to also grow and evolve them over time." (emphasis added).

Sierra is a small company right now, with a market cap at under $700 million. In May the company reported its Q1 2014 results with a 19.5% year-over-year revenue increase, but has yet to turn a profit. But Sierra's potential in the Internet of Things space is huge. Not only does the company provide wireless modules but it's also created its own cloud network to manage connected devices. This means companies can easily integrate Sierra's wireless modules into formerly un-connected objects, and then manage them all from Sierra's cloud.

The company's wireless modules can be found in Tesla's cars and Nespresso's coffee makers. Its leadership position is M2M modules is very strong right now, with the company holding about 34% of the worldwide embedded module market. I think investors should see the Philips CityTouch deal as really good news as the company is clearly expanding into new areas of wireless module connectivity.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.