SWIR

[Ramsburg]

Hi everybody,

Rough day for the Main… But like David said the 2 catalysts for this big drop are NVTL and SWIR, the rest of the portfolio is just having a normal profit taking drop with no issues (perfectly normal after the recent run).

I’ve just talked with David on the phone about NVTL / SWIR and the effects of Qualcomm’s new «Gobi» technology, this will need some further investigation from our side, but after reading this (thanks la-onda):

In an interview Wednesday, Sierra Chief Executive Jason Cohenour said the announcement has positive and negative elements with respect to Sierra. On the positive side, it means Sierra has a new product to sell, as Qualcomm indicated it intends to market the Gobi product through its customers, which include Sierra. On the negative side, Gobi makes it easier for other companies to do what Sierra does, he said. "(Gobi) lowers the bar for other competitive entrants," he said.

I’m not sure how to read this kind of statement, taking in consideration it came from a Chief Executive at SWIR and he’s not going to be drastic in any statement… So the bottom line is that we need to dig a little more about this.

Mainly there are two pertinent questions right now:
1 - Is there a real threat of a massive coming of new competitors on to this market?
2 - What about Qualcomm? Are they going to take the lead and start dealing with NVTL and SWIR’s customers from now on? What impact does it have on both our companies?

About a massive coming of new competitors, the profit margins are relatively low, and it took several years for both companies succeed (being only 2 major players on this market)… Even with better margins and lower competitive barriers, this kind of market doesn’t appeal this sort of immediate threat, and in both cases this companies have an established position on it.

The second question is probably more relevant, we still don’t have enough information, but taking from this, we can have a problem (thanks buddjas1):

"HP and Qualcomm share the belief that mobile Internet capability increasingly will be viewed as an essential notebook feature," said Matt Wagner, director, notebook strategy and planning, Personal Systems Group, HP. "HP welcomes the direction that Qualcomm is taking with the multi-mode Gobi technology, and the improvements it can offer notebook customers in enhanced international roaming and greater choice of mobile operator service."

Apparently this is not good, they just talk about HP… but what if something similar happens for example with Dell? But what does it means? And in what terms? How does it will change 3SOF’s valuation model to these companies? Not sure yet… Just brainstorming here…

As a rule of our service we don’t take intraday decisions, like David said diversification is there for these cases. I’m not an expert on this matter and I’m not aware of many important business details on both companies, but from a technical standpoint we are just trading at the same level we were a few days ago (in NVTL’s case, weeks ago), and nothing has changed on the long term technical layout with todays session (although the short term is significantly damaged), anyway this is not a technical trade, so this is not important.

Later on, David will address all of these questions and interpretations in deep and I’m sure he’ll make the best decision for our portfolio.

Best regards,

[la-onda]

CC will be interesting after the bell tomorrow
more detailed update from ETrade:

....
The news is being perceived as negative for Sierra because the Qualcomm product, called Gobi Global Mobile Internet, will make it easier to build the wireless modems that Sierra makes, potentially increasing competition. As well, it could mean that Qualcomm, which provides the raw materials that Sierra uses to make its modems, plans to become a direct competitor to Sierra and other wireless-modem makers. In an interview Wednesday, Sierra Chief Executive Jason Cohenour said the announcement has positive and negative elements with respect to Sierra. On the positive side, it means Sierra has a new product to sell, as Qualcomm indicated it intends to market the Gobi product through its customers, which include Sierra. On the negative side, Gobi makes it easier for other companies to do what Sierra does, he said. "(Gobi) lowers the bar for other competitive entrants," he said.
By introducing the Gobi product, which will allow laptops to connect to the Internet on HSPA (high-speed packet access), CDMA (code division multiple access) and EV-DO (evolution, data optimized) networks, Qualcomm is attempting to fend off a competing wireless standard known as WiMAX. However, because Gobi moves the San Diego company in the direction of competing with its customers, it will need to convince its licensees that it doesn't intend to go into the equipment business, Cohenour said. "I don't think that's their intent," he said.

Still, in its release Wednesday, Qualcomm included a supporting quote from Hewlett-Packard Co. (HPQ), Sierra's biggest customer for embedded modules. An embedded module is a type of wireless modem that is built into a laptop. The inclusion of the Hewlett-Packard testimonial in the release suggests that Qualcom could be working with Hewlett-Packard and, at the very least, raises uncertainty about the future of the HP-Sierra relationship, one analyst said.

Officials from Qualcomm weren't immediately available for comment.

Cohenour said Hewlett-Packard remains a Sierra customer and that, as with all customers, Sierra needs to earn and re-earn the business with every product cycle. "(Sierra) is well-positioned but that doesn't guaranteee us the business," he said.
Cohenour said he is disappointed with the decline in Sierra's stock Wednesday. "Like I said, there's a positive element and a negative element. So I'm taking a bit more of a balanced view."

&

SWIR: Short Interest UP 42.8% to 3.1M in Mid Oct 2007
Wednesday, October 24, 2007 16:26ET
According to new short interest data from NASDAQ, short interest for Sierra Wireless, Incorporated (NasdaqNM: SWIR) INCREASED 42.8% to 3,061,222 shares as reported in mid-October, 2007.

SYMBOL     END SEPTEMBER     MID OCTOBER          CHANGE       %CHANGE  DAYS/COVER
--------   -------------   -------------   -------------  ------------  ----------
SWIR           2,143,367                  3,061,222           +917,855       +42.82%           4

Based on SWIR's 20-day average daily share volume of 828,295, it would require approximately 4 day(s) of buying to cover this short interest.

Interesting statement from Yahoo:
1)
Qualcomm bypassing SWIR and NVTL doesn't exactly fit this graphic, so I'm skeptical.
Bypassing a manufacturer and making a product itself. Qualcomm makes chips, not boards. NVTL and SWIR are the embedded board and device manufacturers. Qualcomm would be violating their own business model if they decided to create their own embedded board based on the chipset.
Businessmodel from Qualcomm:
Qualcomm develops new technology through investment in R&D and strategic acquisitions and fosters competition by broadly licensing the rights to use its patented technology. Further, Qualcomm provides its customers the opportunity to easily and quickly develop and introduce their products by providing chips and software that integrate Qualcomm's technology. Additionally, Qualcomm has worked to reduce its customers' intellectual property costs and minimize intellectual property disputes within the industry through the cross-licenses it has obtained from a very large number of significant patent holders.

2)
also from Yahoo:
Helpful hings for Jason Tommorrow   (2 Ratings)       24-Oct-07 02:22 pm   
why have faith in this company??

1. sierra's markets are growing at a CAGR of over 50%
2. most providers are just getting serious about wireless data services... and are just beginning to see rising revenues from them...check out ATT's earnings and comments on wireless data services yesterday we are and will continue to be a direct beneficiary of this trend
3. Our penetration into the market for existing laptops is less than XXX% (2%??) honestly....what is the likelihood that the entire world will upgrade their legacy laptops for essentially the same functionality that they can already have?? i.e sierra and novatel solutions from their wireless service providers... (in many cases free aircards with a data services contract)
4. qualcomms announcement only applies to computers that will ship as of the second quarter of 08 (probably the end.. would you hold off on a purchase of a new computer for 6 to 7 months for this reason when their are existing solutions from your wireless provider... ? we still have 2 full quarters of PE compresssion AKA higher earnings with no new competition... if anything this gives us a clearer picture of the competition until that time... (there wont be additional competitors for 7 months)
5. Sierra will still be able to make products with the new embedded devices... and with its marquis name... will be a leader...tapping into a new market growth segment... enjoying an additional revenue stream and larger revenue for existing cards due to expanded market awareness and ever cheaper ubiquity of data services.
6. Qualcom's product does not support WI-FI.............. in other words there are still growth ops for Sierra acquisitions and product line broadening.
7. Earnings are out tommorrow and should reflect the same strong growth in data services that ATT's earnings reflected yesterday.. as sierra and novatel are the only two options ithey offer. The Wireless Data service wave is just beginning and we are first up. We are now virtually guaranteed 7 months of unhindered compteition worldwide.

[jorgegr]

Food for thought:
I could be wrong but both SWIR and NVTL are QCOM customers supplied
with a new chip for Gobi products, but unless they already knew about it
they can't start making embedded solutions before they invest in R&D
and that will take some time before launching.
Is QCOM ready to step on and crush these two partnerships ??
Maybe they had to come out with some kind of announcement to
neutralize their competition.
Is the market ready for massive use of Gobi??
Just my two cents for discusion.

[David Randolph]

Thanks for your contributions

I guess the explanation to why SWIR was trading at a discount when compared to NVTL was that "somebody" knew QCOM was working directly with HP, which, as buddjas1 mentioned, is SWIR's biggest costumer.

NVTL's and SWIR's businesses and fundamental trends are very similar, and that's why I bought SWIR in the first place, I was so convinced about the global move to a mobile internet connection, from fixed and wireless, that I wanted more exposure to the industry.

It appears it wasn't a smart move, not because the move to mobile won't happen, but because technological breakthroughs, competition and margin compression will make the businesses not worth a lot 5 years from now. This is always the risk with technology companies, because technology changes quickly and investors need to believe in future value to attach a high value in the present. Stocks like HAUP, for example, suffer from this problem. The company may have the highest revenues and profits now that investors won't care, because they believe HAUP's technology will become obsolete in a couple of years time. So they attach a low earnings multiple to the stock. CPNE is another example, however different, in that case investors thought (and rightly so), that there weren't all that many ignorant consumers available to buy the company's "fraudulent" services.

Anyway, coming back to SWIR, the stock is trading with a discount relative to NVTL, but is that discount enough to make it attractive as a long term investment?

To answer these questions I'll make the same adjustments I made to NVTL's valuation model.

The following is the original valuation model with my original estimates:



And this other one is the valuation model after the adjustments explained in NVTL's thread:



Results tell me the SWIR is still attractive, with an optimal selling price of $23.05, but not terribly so.

SWIR's earnings will be released today after the close, and I'm sure they will be good and guidance will be revised higher. Most probably there's also going to be smart talk in relation to QCOM's issue, which will relief investors and prompt others to buy.

I've already decided to sell NVTL, but I think it is prudent to keep SWIR at least one more day ... my final decision as it relates to the Main Portfolio is to HOLD SWIR.

[soxguy]

Swir up nicely AHSierra Wireless Reports Third Quarter 2007 Results
Thursday October 25, 4:35 pm ET 
TSX: SW Nasdaq: SWIR


VANCOUVER, Oct. 25 /PRNewswire-FirstCall/ - Sierra Wireless, Inc. (NASDAQ: SWIR, TSX: SW) is reporting third quarter 2007 results.
Our results are reported in US dollars and are prepared in accordance with United States generally accepted accounting principles.

ADVERTISEMENT


"During the third quarter of 2007 we experienced continued strong momentum in our business and achieved record quarterly revenue and earnings" said Jason Cohenour, President and Chief Executive Officer. "Our strong results were driven by a combination of continued solid shipments of our AirCard products to existing operator channels, initial shipments of our new HSUPA products, growth in our OEM business and a full quarter of contribution from AirLink. These factors contributed to year over year revenue growth of 112%, improved gross margin and a significantly improved operating margin of 10.4%. During the quarter, our channels reported record sell through of our products and our bookings were strong. These trends, combined with new HSUPA product momentum, give us good revenue visibility and support our expectations for growth and improved profitability in Q4.

Early in Q4, we also achieved an important strategic milestone, closing a new equity issue and raising gross proceeds of $85.1M. We intend to use the net proceeds from this transaction to help fuel the execution of our strategy, including potential acquisitions that we believe will help drive further gains in shareholder value."

Q3 2007 Financial Results

Our revenue for the third quarter of 2007 amounted to a record $111.5 million, gross margin was $33.1 million, or 29.7% of revenue, operating expenses were $21.4 million and net earnings were $9.0 million, or diluted earnings per share of $0.33. Integration costs related to the AirLink Communications, Inc. ("AirLink") acquisition were not material in the third quarter of 2007. Our balance sheet remains strong, with $102.8 million of cash and short and long-term investments, which includes the generation of cash from operations of $14.2 million and excludes the proceeds raised from the equity issue that closed in early Q4.

Results for the third quarter of 2007, relative to guidance provided on July 26, 2007 are as follows:


        Third quarter revenue for 2007 of $111.5 million was better than our
        guidance of $109.0 million. Our earnings from operations were
        $11.6 million, better than our guidance of $9.4 million. Our net
        earnings of $9.0 million, or diluted earnings per share of $0.33,
        were also better than our guidance of net earnings of $7.6 million,
        or diluted earnings per share of $0.27.

Results for the third quarter of 2007, compared to the third quarter of 2006 are as follows:


        Third quarter revenue increased by 112% to $111.5 million in 2007
        from $52.5 million for the same period in 2006. Gross margin for the
        third quarter of 2007 was 29.7% of revenue, compared to 30.2% for the
        same period in 2006. Operating expenses were $21.4 million in the
        third quarter of 2007, compared to $15.8 million in the same period
        of 2006. Net earnings for the third quarter of 2007 were
        $9.0 million, or diluted earnings per share of $0.33, compared to net
        earnings of $1.1 million, or diluted earnings per share of $0.04, in
        the same period of 2006.

        Our third quarter results for 2007 include a full quarter of
        contribution from AirLink. AirLink contributed revenue of
        $9.5 million at a gross margin of 53.2% in the third quarter of 2007.

        Included in our results are stock-based compensation expense and
        amortization resulting from the acquisitions of AirPrime, Inc. in
        2003 and AirLink in May 2007. Adjusting for these amounts, our
        non-GAAP results are as follows:


        (in millions of U.S. dollars)                    Q3 2007     Q3 2006
                                                        ---------   ---------

        Earnings from operations - GAAP                 $  11.6      $  0.1
           Stock-based compensation                         1.5         1.0
           Acquisition related amortization                 1.0         0.3
                                                        ---------   ---------
        Earnings from operations  - Non-GAAP            $  14.1      $  1.4

        Net income - GAAP                                $  9.0      $  1.1
        Net income - Non-GAAP                              10.9         2.1

        Diluted earnings per share - GAAP                $ 0.33      $ 0.04
        Diluted earnings per share - Non-GAAP              0.39        0.08

Results for the third quarter of 2007, compared to the second quarter of 2007 are as follows:


        Revenue for the third quarter of 2007 increased by 4% to
        $111.5 million, compared to $107.4 million in the second quarter of
        2007. Gross margin was 29.7% of revenue in the third quarter of 2007,
        compared to 27.0% in the second quarter of 2007. Operating expenses
        were $21.4 million in the third quarter of 2007, compared to
        $20.9 million in the second quarter of 2007. Net earnings for the
        third quarter of 2007 were $9.0 million, or diluted earnings per
        share of $0.33, compared to net earnings of $6.7 million, or diluted
        earnings per share of $0.25, in the second quarter of 2007.

    Third Quarter Highlights Included:

        -  Commercial availability of our AirCard® 595U USB modem from
           Verizon Wireless for use on Verizon's Broadband Access service.

        -  Commercial availability of the AirCard 595U USB modem and the
           AirCard 597E ExpressCard from Telecom New Zealand for use on the
           Telecom Mobile Broadband service.

        -  Commercial availability of our AirCard 595 PC card and the
           AirLink PinPoint X and Raven X products from Bell Mobility of
           Canada for use on Bell's high-speed EVDO Rev A network.

        -  Commercial availability of the new HSUPA AirCard 880U USB modem
           and AirCard 880E ExpressCard from Telstra of Australia for use on
           Telstra's Enhanced Next G(TM) HSPA network.

        -  Together with Fujitsu PC Asia Pacific, we announced that our
           MC8780 embedded module is integrated into the new LifeBook P7230
           and S6410 to provide HSUPA mobile broadband connectivity. Both
           platforms are now commercially available in Hong Kong for use on
           the SmarTone-Vodafone network and in Japan for use on the
           NTT DoCoMo network.

        -  We announced a bought deal to raise gross proceeds of
           US$78.4 million from the sale of 3,500,000 common shares in the
           United States and Canada at a price of US$22.40 per share. On
           October 2, 2007, after the quarter end, we closed the offering and
           sold 3,800,000 common shares from treasury, which included
           300,000 shares issuable upon the exercise by the underwriters of
           the over-allotment option. Gross proceeds of this offering were
           $85.1 million. We expect to use the net proceeds from the offering
           for general corporate purposes, working capital and potential
           future acquisitions.

    Financial Guidance

The following guidance for the fourth quarter of 2007 reflects our current business indicators and expectations.

Our revenue expectations for the fourth quarter of 2007 are driven by strong demand that is moderated by expected supply constraints on some components.

Similar to the third quarter of 2007, our guidance for the fourth quarter includes a significant revenue contribution from expected new product and channel launches. There are uncertainties associated with the launch and early ramp of new products that could affect our ability to achieve guidance. As a result of our anticipated new product launch activity, we expect fourth quarter operating expenses to increase relative to the third quarter.


    Inherent in this guidance are risk factors that are described in detail in
our regulatory filings. Our actual results could differ materially from those
presented below. All figures are approximations based on management's current
beliefs and assumptions.

                                                 Non-GAAP Adjustments
                                 --------------------------------------------
                                               Acquisition     Integration
    Q4 2007 Guidance     GAAP      Stock Comp  Amortization(1)     Costs
    ----------------     ----      ----------  ---------------  ------------

    Revenue        $125 million
    Earnings from
     operations    $12.8 million  $1.5 million  $1.0 million    $0.2 million
    Net earnings   $11.1 million  $1.1 million  $0.8 million    $0.1 million
    Diluted
     earnings
     per share     $ 0.35/share


                     Non-GAAP
                     --------

    Revenue        $125 million
    Earnings from
     operations    $15.5 million
    Net earnings   $13.1 million
    Diluted
     earnings
     per share     $0.42/share

    (1) Represents purchase price amortization associated with the
        acquisition of AirLink Communications, Inc. in May 2007 and the
        acquisition of AirPrime, Inc. in 2003.


    Conference Call, Webcast and Instant Replay

We will host a conference call to review our results on Thursday, October 25, 2007 at 2:30 pm PST, 5:30 PM EST. You can participate in the conference call either via telephone or webcast. To participate in this conference call, please connect approximately ten minutes prior to the commencement of the call.


    Telephone participation:

        Please dial the following number:
        1-800-733-7560   Passcode:  Not required
        or
        1-416-644-3414   Passcode:  Not required

[soxguy]

Short version.                                                        DJ Sierra Wireless Posts Record 3Q On Several Factors >SWIR



  DOW JONES NEWSWIRES

  Vancouver's Sierra Wireless Inc. (SWIR) posted record revenue and earnings in the third quarter, driven by a combination of continued solid shipments of AirCard products to existing operator channels, initial shipments of new HSUPA products, growth in the OEM business and a full quarter of contribution from AirLink.

  Sierra earned $9 million or 33 cents a share in the quarter, up from $1.1 million or 4 cents a year earlier.

  Non-GAAP earnings improved to $10.9 million or 39 cents a share from $2.1 million or 8 cents, exceeding the First Call earnings estimate of 27 cents a share for the latest quarter.

  Revenue jumped to $111.5 million from $52.5 million.

  For the fourth quarter, Sierra anticipates revenue of $125 million, driven by strong demand that is moderated by expected supply constraints on some components. It expects GAAP earnings of $11.1 million or 35 cents a share.

  -Tara Zachariah; 416-306-2100; [email protected]


  (END) Dow Jones Newswires

  October 25, 2007 16:51 ET (20:51 GMT)

  Copyright (c) 2007 Dow Jones & Company, Inc.- - 04 51 PM EDT 10-25-07

**Brought to you by Scottrader, a product of Scottrade Inc*

[kslifka]

Revenues in q3 were $111 million; upped revenue quidance next quarter to be $125 million.

2007 revenues will end up being over $530 million.

Net profit margin increased to 10.7%

[la-onda]

1st upgrade:

SWIR: US Bancorp Ups to Outperform from Mkt Perform; Analyst Notes
Friday , October 26, 2007 07:28ET
Issuer: Sierra Wireless, Incorporated (NasdaqNM: SWIR)
Analyst Firm:  U.S. Bancorp Piper Jaffray
Ratings Action: UPGRADE
Current Rating: Outperform (from Mkt Perform)
Analyst Comments: The upgrade follows strong Q4 results and guidance.

&

Sierra Wireless Shares Climb After Big Earnings Increase and Strong Guidance

NEW YORK (AP) -- Shares of Sierra Wireless Inc. rose in Friday premarket trading after the company reported third-quarter profit jumped eight fold and issued fourth-quarter guidance above Wall Street's forecast

Shares of Sierra Wireless gained $2.50, or 13.1 percent, at $21.57 in premarket trading.

CIBC World Markets analyst George Iwanyc, who kept his "Sector Outperformer" rating and $30 price target on Sierra, said the wireless broadband company is in a "leadership position in a "strong" market.

"Sierra once again delivered a strong quarter and the outlook suggests momentum is growing," Iwanyc said in a client note. "We see several drivers to sustain the growth in 2008."
Demand for Sierra's products should continue to grow in the fourth quarter and beyond as the company expands its 3G technology and machine-to-machine connectivity, he said.
Iwanyc also said the Canadian company's AirLink platform, which allows laptop computer users to make wireless connections to the Internet, helped deliver better-than-expected results in the third-quarter. Sierra reported third-quarter profit of 33 cents per share on revenue of $111.5 million, compared with earnings of 4 cents per share, or $52.5 million, in the year-ago period. For the fourth quarter, Sierra expects earnings of 35 cents per share on revenue of $125 million. Analysts, on average, expect profit of 28 cents per share on sales of $116.2 million, according to a poll by Thomson Financial.



Soxguy, could you please check your format before posting. It is much easier to read afterwards....

thanks in advance

[David Randolph]

SWIR's earnings will be released today after the close, and I'm sure they will be good and guidance will be revised higher. Most probably there's also going to be smart talk in relation to QCOM's issue, which will relief investors and prompt others to buy.

Everything happened as expected.

I've already decided to sell NVTL, but I think it is prudent to keep SWIR at least one more day ... my final decision as it relates to the Main Portfolio is to HOLD SWIR.

It was a good decision, since SWIR is up 13.8% in pre-market.

EPS was $0.33, compared to the $0.27 guidance. And they gave $0.35 EPS guidance for Q4. This tells me full year 2007 EPS will be at least $1.13, while the average analyst estimate was calling for $1.01. Clearly, 2008 EPS will be higher than the $1.19 estimate, so analysts will have to raise their estimates.

On Gobi, they said they confirmed with Qualcomm that QCOM will sell Gobi through its existing and potential new costumers, like SWIR and NVTL, and not directly to HP or mobile carriers. So, Gobi is a new product for SWIR to sell, and this is the good news. The bad news from Gobi is that, as they say, it will lower the barrier for new competition.

In the Q&A session, the CEO said Gobi won't increase SWIR's profit margins, and it is still too early to say if it will lower margins. This isn't good, they're admitting potential price pressures due to competition.

Revenue grew 4% from Q2, and 112% from Q3 2006, but I want to focus on this Q3 2007 - Q2 2007 growth. Growth is a lot slower than a 53% CAGR in units shipped should imply, so this means average selling prices are coming down. I believe my 40% revenue CAGR estimate is appropriate and perhaps even a bit optimistic, given that I see pressure in average selling prices.

The optimal selling price given by my valuation model is $23.05 and the stock is trading at $21.55 in the pre-market. The 2007 earnings multiple is currently 19.1 and I think the earnings multiple will remain at around 18 for the long term.

My final decision is to SELL SWIR around today's open.

[David Randolph]

SWIR made a higher low, but it will face significant overhead resistance now. We'll see what happens next: