July 23, 2008 / 9:11 PM / 9 years ago

Sierra Wireless shares sag in wake of weak outlook

TORONTO (Reuters) - Wireless modem maker Sierra Wireless Inc (SW.TO) (SWIR.O) warned of “macroeconomic uncertainty” in key markets and an erosion in some of its sales on Wednesday, sending its shares plunging more than 20 percent in after-hours trading.

Sierra, which makes the AirCard and Compass lines of wireless modems, said it earned $11 million, or 35 cents a share in the three months ended June 30. That was up from a profit of $6.7 million, or 25 cents a share, a year earlier. The results were in line with analysts’ estimates.

However, the company said it was keeping a “cautious” short-term view, given the economic concerns. As well, it expects an erosion in sales of its embedded modules to personal computer makers.

“With respect to the rest of our business, we feel good about the strength of our product cycle, we feel good about our channel position, but we are just not expecting the same level of sell-through growth in (the third quarter) that we’ve seen in quarters past,” Chief Executive Jason Cohenour told analysts in a conference call.

Its shares dropped to $12.50 in electronic after-hours trading, down $3.57 or 22 percent from their regular-session close of $16.07 on Nasdaq.

For the third quarter, Sierra said it expects revenues of $140 million, and diluted earnings of 27 cents per share.

Nick Agostino, an analyst at Research Capital, said he expected the company would provide a weak topline outlook for the third quarter.

But the earnings per share number was a negative surprise and “certainly a lot lighter than I was expecting,” he said.

Sierra said second-quarter revenue shot up to $155.7 million from $107.4 million a year ago as strong demand for its products continued throughout the quarter.

Cohenour also said the company continues to evaluate potential merger and acquisition opportunities “of both significant size and smaller.”

Analysts had expected the company to earn 34 cents a share on revenue of $154.6 million, according to Reuters Estimates. “Longer term, we continue to be encouraged by the growth opportunities in our market segments,” Sierra said in a statement.

“Mobile broadband services continue to expand and improve around the world, customer awareness ... is growing, market segments and applications are expanding and overall market penetration is still very low.”

The company said it generated $14.6 million of cash from operations during the quarter and had $217 million of cash, short and long-term investments.

Sierra’s shares closed 75 Canadian cents higher, at C$16.15, on the Toronto Stock Exchange.

($1=$1.01 Canadian)

Reporting by Wojtek Dabrowski; editing by Rob Wilson

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