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One of the coolest things Sierra Wireless (
SWIR
) has ever done is help fix the Philadelphia police department's overloaded communications system. In 1996, the cops there had a communications breakdown, with one dispatcher controlling dozens of vehicles and only one cruiser able to talk back at any given time, leaving the rest of the fleet speechless. To solve this bottleneck, the department put wireless data modems made by Sierra Wireless in each car to provide a direct voice connection to the central dispatching system.
Now, Sierra is aiming to leap to the much bigger consumer and corporate cell-phone, PDA, and laptop markets with its AirCard line of plug-and-play wireless modems. The small Vancouver (B.C.) business has already penned deals with big service providers such as Sprint PCS, GoAmerica, and Bay Area-upstart Metricom to provide the cards for wireless data appliances on zippy new networks.
But the company's fortunes are far from certain. Sierra's future largely depends completely on how fast cellular operators roll out new networks -- an open question in a stock market environment that has halved the valuations of most companies in the industry in the past six months. Sierra also could face crippling component shortages in the near term. And, some analysts suggest, if consumers rapidly embrace wireless Internet technology, much larger companies may try to enter the market Sierra currently rules.
NETWORK ACCELERATION. But almost everyone expects the market to grow dramatically in the short term. Market-researcher Dataquest forecasts an expansion to 19.8 million wireless data service subscribers by 2004, from 182,400 in 1999. And network-operator revenues are expected to rocket to $5.4 billion in 2004, from $55 million in 1999.
Of course, that growth depends on faster networks with broader coverage, both of which remain largely in the build-out stage. The limited wireless data services available now mostly run at a snail-like 14.4 or 19.2 kilobytes per second, far slower than the majority of dial-up modems. But wireless data providers are rapidly ramping these networks to 128 kbps -- Metricom already offers this service in nine markets, with an additional 36 being added in upcoming months. By 2003, those networks are projected to accelerate to 2 megabytes per second. That's faster than most cable and DSL modems today.
Analysts figure the higher speeds will make the wireless Internet far more alluring not only to consumers but to companies, too. "Salespeople will be able to check inventory and place orders directly from a client's office, and consumers will be able to research product reviews and pricing while they shop," says David Chalk, chairman of technology consultancy The Chalk Network.
BIG COMPETITION? Sierra's stock is now in the low 70s, close to its 52-week high of 80 5/8. That puts the company into the nosebleed three-figure range in terms of price-to-earnings multiple. But Sierra seems intent on justifying that lofty valuation. Last quarter, the company shattered analysts' estimates, posting record revenues of $15.2 million, breaking even, a far better outcome than the six cents per share loss analysts had forecast.
That may be why analysts have turned bullish on Sierra. Lehman Bros., which rates Sierra a buy, estimates the company will nail 100% revenue growth for 2000, with revenues rising from $24 million last year to $49 million this year. "It's an extraordinarily well run company," says CIBC World Markets analyst Barry Richards.
But Sierra is by no means home free. Their main competition comes from NovAtel Wireless Inc., a San Diego company headed for an IPO slated at $77 million. And Richards figures that should customers adopt these new wireless data services quickly, Sierra might find itself competing against bigger consumer telecom gear providers.
HAPPY CUSTOMERS. To head that off, Sierra is signing deals hand-over-fist to co-brand its equipment with big service providers who sell directly to consumers and can provide customer support. "Customers aren't going to buy a wireless product with a good-luck tag attached," says Sierra director of strategic marketing Jeff Morris. "That's why we've teamed up with the telecoms."
Thus far, these deals have resulted in happy corporate customers. Morris hopes to add consumers to those ranks shortly. In the development stage are wireless Internet adapters for PDAs like Handspring's Visor, Compaq's iPAQ, and Hewlett-Packard's Jornada. If it can pull that off, Sierra might just grow to be a big voice in an inevitably huge market.
By Richard Ketchen in Vancouver, B.C. Edited by Alex Salkever
Copyright 2000, by The McGraw-Hill Companies Inc. All rights reserved.
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