Sierra Wireless (TSX:SW) CFO David McLennan was one of the speakers at last Thursday’s Pender Capital Conference in Vancouver, which featured execs from CRH Medical, ICG Group and Solium Capital.
Dave Barr, who runs the Pender Small Cap Opportunities Fund, which owns Sierra Wireless, introduced Maclennan, who talked about a goal of the company’s that has recently become a reality; to become a machine-to-machine pure-play.
In April, Sierra Wireless completed the sale of its AirCard unit to California-based Netgear, representing its last and largest move in becoming an M2M pure play. McLennan broke the down the various M2M verticals Sierra Wireless now plays in, including railway, energy and industrial infrastructure.
One sub-sector McLennan expects real growth from is the connected car space. Sierra sells to a company called Denso, which is part of the Toyota Group, and in-turn sells to many different car manufacturers. To date, these products have performed mostly simple tasks, such as alerting the manufacturer to a deployed airbag. Some parts of the Europe are beginning the steps to legislate this kind of basic connectivity.
But McLennan says he thinks Sierra Wireless will grow in the broadband to vehicle segment. He sees an advantage here because consumers are demanding their cars be as connected as their homes, and Sierra is ready with solutions that are cheaper and faster than its competition.
In June, the company announced a new product, the AirPrime® AR7550, an embedded wireless module that was specifically developed for Verizon’s 4G LTE network. It is, in fact, Sierra Wireless’s third generation of modules for LTE networks. The product provides a dedicated application processor, an open-source application framework, and secure cloud services to simplify wireless integration.
Barr says Sierra Wireless’s move to sell a business that was bringing in a lot on the top line to focus on more profitable segments was both bold and sensible. But he says the street is still valuing the company based on the notion that its business is boring and antiquated, when in fact the company is now on the cutting edge.
Pender Small Cap Opportunities Fund, which takes a value-based approach to small caps, has 3.14% of it value in Sierra Wireless. The fund’s Class A shares have a three-year return of nearly 20%.
Influential analyst Mary Meeker thinks the connected car space is part of a future that will be all about “wearables, drivables, flyables, and scannables” In her always anticipated Internet Trends Report, the Kleiner Perkins Caufield Byers partner listed the connected car space as one of her favourite future trends for the second year in a row. She notes that 13% of usage of streaming music service Pandora occurs in cars, up from next-to-nothing in 2009.
At press time, shares of Sierra Wireless on the TSX were down .3% to $11.75.