Technology -- Communications Technology -- Wireless Equipment



Investment recommendation: Sierra Wireless announced an agreement

to sell substantially all of the assets and operations related to its AirCard

business to NETGEAR for $138M in cash and approximately $6.5M in

assumed liabilities. Management expects the transaction to close in

March 2013. Sierra will retain its AirPrime embedded module and core

M2M business units. We believe the $100M of net proceeds provides

Sierra with significant financial resources and capacity to focus on its

higher-margin M2M business and expand its leading M2M product

portfolio. We reiterate our BUY rating and $14 price target.

Investment highlights

? Sierra Wireless announced preliminary 2012 results with sales of

$644M, in-line with our $643 estimate. Embedded laptop module sales

of $14M and implied M2M sales of $95M were slightly above our

$13.3M/$92.6M estimates. Management will provide additional

financial details on the retained businesses on February 6.

? We believe this transaction supports our thesis for consolidation of the

fragmented but strong growing M2M market. Given Sierra’s strong track

record of successfully integrating its Airlink, Wavecom, and Sagemcom

acquisitions to grow the M2M franchise, we believe Sierra can

successfully use the $100M in proceeds to profitably grow its M2M

business faster than our 16% M2M hardware market revenue CAGR.

Please see our M2M industry report published November 5 titled

Overview of investment opportunities in burgeoning M2M market” for

additional detail about growth drivers in the M2M market.

? While we anticipate the transaction will be dilutive to our 2013 pro

forma EPS estimates, we believe the $100M in additional cash and the

increased focus on growing its M2M franchise positions Sierra for much

stronger long-term earnings growth.

Valuation: Our $14 price target is based on shares trading at roughly

14x our 2013 pro forma EPS estimate.