Sierra Wireless

Analyst: Victor Sula, Ph.D. Initial Report June 29th, 2009

SWIR daily

6/26/09

7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 Š BigCharts.com

3 2 1

Millions

volume

0 Apr

May

Jun

MARKET DATA

Share Statistics (23-Jun-09) Symbol Current price Low/ High 52 weeks Average Volume Market Cap Dil. Shares Outstanding

FY2007

FY2008

% Chg

SWIR

Revenues, $ Mn.

$5.13

Gross margin

$2.64 –$16.24

Operating margin

7.6%

7.9%

30 bp

535,000

Net margin

7.4%

11.0%

360 bp

EPS, $

1.16

2.00

72.4%

439.9

567.3

28.9%

28.0%

27.6%

-40 bp

$159.2 Mn 31.03 Mn

Recommendation Sierra Wireless has a robust product line and one of the top market share positions in North America for USB modems, PC cards, M2M Gateways and 3G embedded modules. The recent merger with Wavecom has brought to SWIR new customers and product lines, much needed market diversification and cost-cutting opportunities that will enhance revenue base and earnings.

With SWIR price near its 52-week low and selling for slightly less than cashper-share value it could be a good investing opportunity. Following the recent financial results, when SWIR succeeded to outperform analyst expectations, reporting lower-than-expected declines in revenue and earnings, strong free cash flow generation ability, an extensive cost reduction program, and encouraging outlook, we rate SWIR with a Buy rating.

Highlights Consistent with its strategy to expand aggressively into the M2M market, SWIR made an offer to purchase Wavecom, a global leader in M2M based in France, in the fourth quarter of 2008. The total value of the transaction was Sierra Wireless Inc. (Nasdaq: SWIR)

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Analyst: Victor Sula, Ph.D. Initial Report June 29th, 2009

Sierra Wireless Inc. provides wireless wide area modem solutions for the mobile computing, rugged mobile and machineto-machine (M2M) markets. The Company develops and markets a range of products that include wireless modems for mobile computers, wide-area wireless AirCard products, embedded modules for original equipment manufacturers (OEMs), and high value fixed and mobile wireless data solutions for industrial, commercial and public safety applications. The Company also provides various product development and integration support services, which include software and hardware integration, platform RF testing and optimization, regulatory approvals, mobile operator certification, project management, and sales and technical support training.

The Company’s mobile computing products are used by businesses, consumers and government organizations to enable high speed wireless access to a wide range of applications, including the Internet, e-mail, corporate intranet, remote databases and corporate applications. The embedded wireless solutions are used by a wide range of industries including mobile computing, networking equipment, automotive, security, transaction processing, mobile resource management and energy. SWIR’s rugged mobile and M2M gateway solutions are used primarily in the public safety, energy, industrial, transportation, automotive and transaction processing markets.

approximately EUR218 million, representing an enterprise value of approximately EUR 85.5 million. On February 27, 2009, SWIR completed the acquisition. The acquisition of Wavecom should significantly expand SWIR’s position in the global M2M market by providing highly sophisticated wireless platforms sold as wireless central processing units which integrate all of the necessary software and hardware on miniature circuit board platforms that can be used for a wide variety of applications and increase the Company’s scale and capabilities in Europe and Asia.

In the first quarter of 2009, the Company introduced USB 306 and USB 307, the world’s first mobile broadband USB modems for HSPA+ networks. The new modems nearly triple the speed of other mobile broadband devices, with peak download speeds of 21 megabits per second, making them the fastest mobile broadband devices available. The new USB modem for HSPA+ networks became commercially available in Telstra’s retail stores in Australia, where it is marketed as the Next G Turbo 21 Modem.

In February, SWIR collaborated with Telefónica to demonstrate HSPA+ mobile broadband technology at Mobile World Congress in Barcelona, using the new Sierra Wireless USB 306.

In 2008, the Company reported year-over-year revenue growth of nearly 30% reaching a record of $567.3 million sustained by the sales of newest HSPA and EV-DO Rev A products. The Company has also achieved record earnings of $62.6 million, or EPS of $2.00 in 2008, compared to $32.5 million or EPS of $1.16, in 2007. SWIR’s first-quarter 2009 revenue fell 22% to $111.4 million, but topped the $95.3 million average estimate of analysts surveyed by Thomson Reuters. The Company slid to a net loss, hurt by lower sales and charges related to its purchase of French wireless technology firm Wavecom and layoffs. Analysts polled by Thomson Reuters expect the Company to earn $0.09 per share in the fiscal 2009 and $0.42 in fiscal 2010.

The Company has a strong balance sheet with $145.1 million of cash and equivalents and short-term investments at March 31, 2009. Of the $145.1 million, $29.5 million is restricted cash that provides security for the letter of credit issued in connection with the acquisition of Wavecom.

The Company has a strong global presence, being headquarters in Vancouver with facilities in Paris, Toulouse, San Diego, San Francisco, Raleigh, Hong Kong and Shenzhen. It sells its products primarily through indirect channels, including wireless operators, value added resellers and OEMs. SWIR’s products are sold by mobile network operators worldwide, including AT&T in the United States, O2 in the United Kingdom, Telus in Canada,

Sierra Wireless Inc. (Nasdaq: SWIR)

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Analyst: Victor Sula, Ph.D. Initial Report June 29th, 2009

Telecom in New Zealand, Telstra in Australia and Swisscom and Sunrise in Switzerland.

STOCK PERFORMANCE (%) Price Change

GROWTH (%)

1 Yr.

3 Mo. 76.8

Last Qtr.

3 Yr. (Ann)

-67.5

-67.4

12 Mo.

3 Yr CAGR

Revenues EPS

-21.5 n/m

28.9 72.4

74.3 n/m

RETURN ON EQUITY (%)

SWIR

Ind Avg

S&P 500

9.1 9.2

8.4 14.6

20.4 20.2

TTM 5 Yr. Avg.

P/S comparison

Financial Analysis In 2008, SWIR achieved record annual revenue of $567.3 million; an increase of 29% compared to $439.9 million in 2007, due to the launch of nine new mobile computing products for both High Speed Packet Access (HSPA) and CDMA EV-DO Rev A networks.

The Company has also expanded its product footprint with key existing customers such as AT&T and Sprint, and significantly grew its European and Asia-Pacific business. Gross margin was 27.6% in 2008, compared to 28.0% in 2007.

First-quarter revenue decreased by 29% to $111.4 million in 2009, compared to $141.9 million for the same period in 2008. The decrease was mainly due to economic conditions in the markets SWIR serves and the integration of the Wavecom acquisition.

Gross margin for the first quarter of 2009 was 27.2% of revenue, compared to 27.8% for the same period in 2008. Sales of PC adapter products constitute about 70% of the Company’s revenue.

Cash provided by operating activities was $86.1 million for the year ended December 31, 2008, compared to cash provided by operating activities of $48.8 million in the same period of 2007.

As of March 31, 2009, the Company had $145.1 million of cash, cash equivalents and short-term investments, compared to $272.7 million at December 31, 2008. Of the $145.1 million at March 31, 2009, $29.5 million was restricted cash provided as security for a letter of credit issued in connection with our acquisition of Wavecom. For the three months ended March 31, 2009, cash provided by operations was $10.5 million, compared to $17.0 million in the same period of 2008.

Industry analysis

Source:Reuters.com

The wireless industry currently is experiencing a demand for mobile computing. The deployment of mobile broadband networks around the world, aggressive promotion of mobile broadband services by wireless operators, attractive mobile broadband rate plans and growing customer awareness are all helping to drive demand. New wireless standards such as HSDPA, HSUPA, HSDPA, and LTE continue to emerge. The wirelesses for mobile computing and M2M markets have strong long-term growth prospects. Markets are expected to grow from $5.1 billion in 2008 to $20.3 billion in 2013.

Cisco projects that mobile data traffic are likely increase 1,000 fold

Sierra Wireless Inc. (Nasdaq: SWIR)

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Analyst: Victor Sula, Ph.D. Initial Report June 29th, 2009

FY07

FY08

INCOME STATEMENT Net Sales ($mil) Gross profit ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil)

439.9 123.1 47.3 43.4 32.5

567.3 156.7 75.5 70.7 62.6

BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil)

83.6 385.0 0.3 295.3

63.3 462.4 0.2 357.5

28.0% 7.6% 1.48 8.4% 11.0%

27.6% 7.9% 1.34 13.5% 17.5%

3.55 0.0 n/a n/m

3.99 0.0 n/a n/m

31.33 1.16 9.4 n/a 791,227

31.03 2.00 11.5 28% 648,129

PROFITABILITY Gross Margin Operating Margin Asset Turnover Return on Assets Return on Equity DEBT Current Ratio Debt/Capital Interest Expense ($mil) Interest Coverage SHARE DATA Dil. Shar. Outst.(mil) EPS Book value / share Institutional Own % Avg Daily Volume

Source: SEC filings; analyst estimates.

Q1 08

Q1 09

INCOME STATEMENT Net Sales ($mil) Gross profit ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil)

141.9 39.3 15.1 13.8 9.7

111.4 30.7 -22.5 -24.2 23.9

BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil)

103.5 421.5 0.8 307.5

76.0 509.0 1.1 334.3

Source: SEC filings

Sierra Wireless Inc. (Nasdaq: SWIR)

from 2005 through 2012, with video driving most of the world’s mobile traffic growth. Informa has projected worldwide mobile data service revenue to exceed $200 billion in 2008, a nearly 30% increase over 2007. According to research done by Analysis Mason, 47% of all broadband subscribers in Europe will access the internet through mobile networks by 2013, and in that same five-year horizon, they project nearly a quarter of all broadband equipped households could be using mobile networks as their primary data connection.

Another trend is the move of the industry into 3G, which then in turn drives the demand for 3G compatible test equipment. Also, there is an uptake in the demand to test the service environment.

Countries such as China, India, Russia and certain Latin American countries have not deployed their 3G networks yet, however, they are preparing for the 3G deployments in the 2100 MHz band.

Moreover, the countries which deployed 3G move to 4G and specifically to 3GPP Long Term Evolution (LTE) effort. LTE is assumed to dominate world’s mobile infrastructure markets after 2011. AT&T and Verizon Wireless intend to get their LTE-based 4G networks up and running in 2010.

Analyst opinion The Company is one of the leaders in wireless modems for mobile computing and M2M addressing enterprise, consumer, original equipment manufacturer and specialized vertical industry markets. In its 15 years of existence, Sierra Wireless has been instrumental in developing some of the first wireless data devices and remains committed to developing new, innovative products and software for emerging network technologies. New product development activity and channel expansion contribute to a cushioning impact of current economic environment.

SWIR’s recent acquisition of Wavecom is expected to diversify the Company’s business opportunities into new vertical markets - in particular, the high-margin machine-to-machine segment.

Considering that analysts were expecting SWIR to grow at a 21% clip over the next five years without getting bigger via buying Wavecom, the acquisition of the later may act as a major revenue catalyst in future reporting periods. Moreover, after the recent acquisition, SWIR still has $76 million in cash and other $70 million in restricted cash balances and short term investments which is slightly below its current market cap.

During the last two quarters the Company’s financial results were well above analyst estimates despite the intensifying competition in the PC OEM segment and adverse economic conditions. SWIR 4

Analyst: Victor Sula, Ph.D. Initial Report June 29th, 2009

Consensus Estimates SWIR

FY 2009 31-Dec-09

FY 2010 31-Dec-10

EPS, $ Revenue, $Mil

0.09 537.2

0.42 600.5

has solid fundamentals and powerful performance indicators such as: five years sales growth at approximately 40% per annum; five-year income growth at a whopping 93% per year; a ttm P/E of 5.5 and insignificant debt. The market has strong growth potential and when the business cycle will strengthen, the Company, with a broader product line and clients base, will be positioned to resume its double-digits growth pace. Accordingly we rate SWIR as a Buy.

consensus estimates are provided by Thomson Financial

Comparative analyses Company Name Jun-23-09

Rev. consensus estimates, $Mil. Ticker Symbol

Revenue, $ Mn

2009 311.7 603.6 194.4 407.4 1,316 195.1 26,396

NVTL NTGR SNWL ELMG COMS ARUN ERIC

2010

%Chg

346.7 657.7 203.6 450.4 1,229 214.3 27,925

11% 9% 5% 11% -7% 10% 6% 9%

Median 537.2

SWIR

600.5

Novatel Wireless Inc. NETGEAR Inc. SonicWALL Inc. EMS Technologies Inc. 3Com Corp.

Aruba Networks Inc. Telefonaktiebolaget LM Ericsson

Ticker Symbol NVTL NTGR SNWL ELMG COMS ARUN ERIC

Price per Share, $ 8.77 14.82 5.41 19.10 4.39 7.73 9.37

P/E Mrkt. Cap. $ Mn 2009 2010 266.9 509.5 291.1 290.5 1,700 667.6 30,380

Median Sierra Wireless, Inc.

SWIR

5.13

159.2

125.29 494.00 18.66 14.04 10.71 110.43 18.74

33.73 26.95 16.91 11.37 14.16 59.46 13.99

18.74

16.91

57.00

12.21

Source: Thomson Reuters; Yahoo! Finance.

12%

Source: Thomson Reuters.

EPS. consensus estimates, $ Ticker Symbol NVTL NTGR SNWL ELMG COMS ARUN ERIC

EPS, $

2009 0.07 0.03 0.29 1.36 0.41 0.07 0.5

2010

%Chg

0.26 0.55 0.32 1.68 0.31 0.13 0.67

271% 1733% 10% 24% -24% 86% 34%

Median SWIR

55% 0.09

0.42

367%

Source: Thomson Reuters.

Sierra Wireless Inc. (Nasdaq: SWIR)

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Analyst: Victor Sula, Ph.D. Initial Report June 29th, 2009

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We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www. finra.org.

All decisions are made solely by the analyst and independent of outside parties or influence.

I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

Sierra Wireless Inc. (Nasdaq: SWIR)

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