Although wireless device vendor Sierra Wireless Inc. continues to ride a wave of positivity on Wall Street, at least one firm believes the company is in for a quick fall in the not-too-distant future.
“We recommend investors sell SWIR (Sierra Wireless) shares because this maker of components for wireless communications is facing intensified competition for its primary 3G data card product, is losing a major module customer, and is likely to report disappointing sales of its new Voq smart phone,” said IRG Research in a note to investors. The firm said it does not make a market in Sierra securities. “We believe that deteriorating fundamentals could become evident as early as [the fourth quarter of this year].”
Sierra Wireless’ stock was down slightly after the release of IRG’s report, trading at about $18.15 per share. IRG rates the company’s stock as a “sell.” Other analyst firms rate it as “average” or “market perform.”
IRG said Sierra faces several significant hurdles, most notably the potential failure of its entry into the smart-phone market. Sierra introduced its Voq smart phone last year, and it represents a major new part of the company’s strategy and business. IRG describes the effort as “an expensive mistake,” suggesting that the smart-phone market is already crowded with the likes of PalmOne Inc., Sony Ericsson Mobile Communications L.P., Research In Motion Ltd. and others, and that Sierra doesn’t have enough carrier agreements to sell the device on a large scale. Sierra has deals to sell the Voq through a handful of carriers and resellers in Europe and North America.
“We don’t have as many carriers on board for the Voq as we would like to have,” said David Sutcliffe, Sierra’s chief executive officer. However, Sutcliffe said the company has extensive reseller agreements to sell the Voq, and that the reseller channel can be “very effective.” He added that Sierra plans to add additional Voq carriers in the near future.
IRG predicted the company would sell 70,000 Voq devices next year. Sierra does not provide sales projections.
Apart from the Voq, IRG said Sierra also faces mounting competition in the sale of wireless modems and embedded modules. Specifically, the firm said Sierra stands to lose its main embedded module customer, PalmOne. Sutcliffe said Sierra is indeed not supplying the modem for PalmOne’s new Treo 650 device, but the company continues to ship modules for the Treo 600. Further, Sutcliffe said Sierra’s embedded modules business is shrinking and represents around 25 percent of the company’s revenues. PalmOne declined to name its new embedded module supplier.
On the wireless modem side, IRG said Sierra faces mounting opposition from the likes of Novatel Wireless and others, especially because the company currently does not have W-CDMA products. Sutcliffe said Sierra plans to release a W-CDMA modem next year, which he described as the “right time” for such a product.
On the CDMA EV-DO side, IRG said Sierra could face a decline in sales due to what the firm said were “technical glitches” in the company’s EV-DO product for Verizon. Sutcliffe said the allegations of a technical glitch were “patently false.”
IRG predicts Sierra will score $241.6 million in revenues next year. An average of nine analysts predicts the company will make $250 million next year, according to Yahoo! Inc.
Sierra sells a variety of modems for mobile phones, laptops and other devices. The company’s stock reached $45 per share earlier this year, but has slowly declined in recent months.
