Investors suddenly decided this week that Sierra Wireless Inc. is well positioned to ride the next big wave of technology.
Shares of the Richmond, B.C. -based company have jumped as the trend toward machine-to-machine (M2M) communication, or the Internet of Things, gains momentum.
M2M is "a big secular theme in tech," said Richard Tse, an analyst at Cormark Securities. "Like big data and cloud computing, machine-to-machine is starting to hit the radar in terms of people understanding what it is. "
M2M refers to the growing practice of allowing devices other than smartphones to speak to each other without human intervention. It's the technology that enables your car to notify emergency services of a crash.
There are currently about 10.7 billion Internet connections worldwide. By the end of the decade, that could rise to 50 billion, according to Cisco Systems , largely as the result of more machine-to-machine communication.
Although Sierra Wireless is the world's leading supplier of M2M modules, it has been trading at a discount to many of its U.S. peers.
On Monday, while Canadian markets were closed for Thanksgiving, Sierra's potential aroused curiosity in U.S. trading, where its shares rose 11.5 per cent. On Tuesday, the TSX caught up, and Sierra shares opened on a 13-per-cent jump before closing at $19.51, an increase of 7.5 per cent on the day.
There was some good news to which to peg the upswing. Last Friday, Sierra announced the acquisition of AnyDATA Corp., a small M2M module and modem company. At $5.9-million, it was hardly a catalyst for the magnitude of the stock swing.
Investors may be seeing the acquisition as an sign of things to come for Sierra. "They've made it quite clear they're looking to expand," Mr. Tse said.
Sierra got serious about M2M in 2008 when it announced the takeover of a French competitor Wavecom SA. The combined company quickly became the world leader in module market share.
The company's commitment to M2M became almost absolute earlier this year when it sold AirCard, the mobile broadband modem business it created in 1999. That $138-million deal provided the cash and the focus the company needed to bet big on M2M, said Michael Walkley, an analyst at Canaccord Genuity. "It became more of a pure-play M2M company and that increased investor enthusiasm,. The punchline on Sierra is that they have some scale advantages."
Sierra's biggest lines of business are automotive and energy. There is plenty of potential in both, Mr. Walkley said. "We're in the early stages of a multiyear growth cycle of connecting machines with wireless connectivity."
As the connected vehicle becomes a standard industry option, Sierra's modules enable applications such as crash safety, driver assistance, navigation and entertainment systems. Its customers include BMW, Ford, Lexus, Mercedes Benz, Toyota and Volvo. ABI Research expects shipments of automotive M2M modules to rise an average of 60 per cent a year between 2011 and 2015.
Smart meters, which transmit data on energy use, also rely on M2M technology. "The pending rollout of smart meters in Europe represents the next wave of M2M uptake in the energy vertical," Paul Treiber, an analyst at RBC Dominion Securities, said in a note. Energy module shipments could rise more than 20 per cent a year by 2015, according to ABI.
The potential applications also extend to the home. Sierra already provides the hardware and cloud platform used in Nespresso brand coffee machines. "The number of 'things' or devices connected to the Internet is set to rapidly expand, given the falling cost of connectivity and the increasing value of an interconnected ecosystem," Mr. Treiber said.