Alex Planes (S ierra Wireless ) : Imagine getting into the best Internet stocks 20 years ago just as the web was starting to take off. Well, that opportunity is here again, and it lies in the Internet of Things , or IoT. Sierra Wireless is widely considered to be a leader in this small but fast-growing field.
The upside and downside for Sierra are similar to those faced by many early Internet companies. If it succeeds, Sierra should grow by orders of magnitude, becoming one of the leading purveyors of critical hardware for a massive industry like a Cisco for the Internet of Things -- anyone who followed Cisco in the '90s will remember just how rapidly the company grew during that time, on both a fundamental and share-price basis:
Sierra boasted an industry-leading 34% market share in machine-to-machine (M2M) embedded modules at the end of 2013. These modules are essential components in the IoT -- they're the pieces of hardware that connect the "things" to the Internet in the first place and thus provide those things with their marching orders, so to speak.
By 2020, the market for connected devices is expected to grow anywhere from 9 times to 35 times larger than it was in 2012, according to several reports. With this growth, just maintaining its market share would give Sierra that order-of-magnitude growth we're looking for. If Sierra can expand its slice of the market, that would truly add some fuel to the opportunity. This could parallel Cisco's story, as the company grew so quickly by increasing its market share throughout the '90s to emerge as the dominant player in the routers-and-switches arena.
However, Cisco never had to contend with the large hardware companies Sierra currently faces in the semiconductor industry. The M2M market is currently dominated by smaller players -- Sierra joins Germany's Gemalto and London's Telit to control about two-thirds of worldwide M2M sales, or about $1 billion between the three companies. Combined, they are worth less than $10 billion, and most of that market value comes from Gemalto's non-M2M operations.Competition from low-cost Chinese chipmakers or dominant connectivity-chip companies like Qualcomm could erode Sierra's pricing power and dampen its growth, if not stall it out entirely.
The upside potential is huge as is the risk. Investors interested in pursuing Sierra should think hard about how much they're willing to bet on the company's ability to maintain its market leadership in the coming years.
Read more: www.fool.com/investing/general/2014/12/15/...spx#ixzz3M5lJZzr1