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August 13, 2021
Phil Brace has been the CEO of Sierra Wireless – a major supplier of IoT modules and gateways for US wireless network operators and others – for all of three weeks. So far, he's been busy.
"The impact of COVID-19 disruptions in Vietnam will be significant for us in Q3," he said this week during Sierra's quarterly conference call, according to a Seeking Alpha transcript. As a result, he said the company cannot provide any financial guidance for the third quarter. "The primary reason we can't provide guidance is really related to the uncertainty around the pandemic and the continued potential disruptions."
Suffice to say, investors aren't too pleased. "Shares are down 8.5% in after-hours trading, and we believe the near-term upside is likely capped with Sierra in the penalty box for the next few months until visibility improves," wrote the financial analysts at B. Riley Securities in a note to investors this week following the release of Sierra's second-quarter earnings.
The situation is unfortunate for Brace and Sierra considering the company reported better-than-expected financial results for its just-finished second quarter. The company's overall revenues rose almost 20% year-over-year to around $133 million. Much of that was due to sales of the company's IoT solutions, which include components for low-power, wide-area networks (LPWANs) and mobile broadband modules.
But Sierra's new troubles started in July, according to Brace. That's just about the time he took over from former Sierra CEO Kent Thexton, who spent three years at the helm working to expand Sierra's global sales of IoT equipment and services to network operators, enterprises and others.
Brace said Sierra's primary manufacturing facility is in Ho Chi Minh City, which is at the center of new COVID-19 lockdowns. "In addition to the manufacturing disruptions, we've also seen disruptions in things like logistics, shipping and customs," he said during Sierra's earnings call.
Brace continued: "We're working very closely with our contract manufacturer to ramp up their production as soon as we can. And we're aiming to get normal production levels back as soon as possible, obviously, subject to further COVID-19 outbreaks and component availability."
Brace said Sierra is embarking on several efforts to address the situation including opening new manufacturing facilities in Mexico and elsewhere, and paying for "isolation hotels" in Ho Chi Minh City for workers of Sierra's manufacturing partner there.
Another effort by Brace: "We are implementing strategic pricing increases to help offset some of the additional costs and investments, while balancing our need to remain competitive in the market."
Brace said he hopes the situation will be temporary.
"We do believe that the significant challenges we are experiencing in Q3 are temporary. Our demand remains very strong and I believe we are taking the right actions and initiatives to navigate through them," he told investors.
Some analysts agree.
"While we are taking a deep cut to our 2H estimates ... as the company's turnaround trajectory and transition to profitable growth are pushed out a couple of quarters, we remain optimistic about Sierra's prospects in 2022 with increasing demand for real-time asset monitoring as companies continue to digitize assets," wrote the B. Riley Securities analysts.
Nonetheless, Sierra's troubles – and Brace's first few difficult weeks on the job – are simply another example of the pandemic's effect on the world.
Editorial Director, 5G & Mobile Strategies, Light Reading
Based in Denver, Mike has covered the wireless industry as a journalist for almost two decades, first at RCR Wireless News and then at FierceWireless and recalls once writing a story about the transition from black and white to color screens on cell phones.
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