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5 Things Sierra Wireless, Inc. Management Wants You to Know

When Sierra Wireless (NASDAQ:SWIR) released first-quarter 2016 results last week, it might have seemed surprising at first to see shares of the Internet of Things specialist skyrocket more than 20% the following day. After all, Sierra Wireless' headline numbers didn't exactly look impressive; revenue fell 5.1% year over year, to $142.8 million, and translated to a 58.4% decline in net income, to just over $2.6 million, or $0.08 per share.

However, both figures came in well above the midpoints of the company's guidance, which called for revenue of $135 million to $145 million, and adjusted net income per share to be "slightly positive to slightly negative." As I wrote a few days before the report, Sierra Wireless also came in with a lot to prove. Shares were still reeling after the company fell short of expectations one quarter earlier, due to a combination of persistent macroeconomic headwinds, shifts in the timing of orders from a single automotive customer, and an ongoing transition by OEMs to a new enterprise notebook processor platform.

But this also reminds us Sierra Wireless' business isn't just about the top and bottom line. So I think investors would do well to dig deeper in an effort to better understand the underlying factors driving these results.

Lucky for us, management offers useful color on the business during each quarter's subsequent conference call with analysts. Here are five of the most important points they discussed during Sierra Wireless' latest call:

1. For OEM Solutions, it's all uphill from here

Looking forward, we expect our OEM Solutions business to rebound in Q2. And to gain strength for the remainder of the year, underpinning our outlook for growth is an expectation that demand from existing customers and programs normalizes and that revenue contribution from new programs ramps, as new customers or as these customers enter start-up production with their solutions. -- Sierra Wireless CEO Jason Cohenour

OEM Solutions still comprises the majority of Sierra Wireless' revenue, even after falling 9.1% year over year last quarter, to $120.9 million. But this result was expected as soft demand persisted at certain automotive customers as described during last quarter's call, and as the aforementioned enterprise notebook platform transition is largely complete. Cohenour also described "solid design-win success" at OEM Solutions during the quarter, with the team securing new programs in the automotive, mobile computing, energy, and security industries.

Despite what its revenue declines might seem to indicate, then, Sierra Wireless' OEM Solutions segment is still doing just fine, and remains poised to gain momentum and drive the company's overall results in the coming quarters.

2. Enterprise margins were strong (but not that strong)

Enterprise gross margin was exceptionally high in Q1 at 65.1%. A significant contributor to the GM result was the favorable impact to cost of goods of the legal settlement referred to earlier...


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