司亞樂 (SWIR) 2003 Q4 法說會逐字稿

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Ladies and gentlemen, thank you for standing by. Welcome to the Sierra Wireless Inc. Fourth Quarter Results Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. At that time, if you have a question, please press the "1" followed by the "4" on your telephone. As a reminder, this conference is being recorded, Wednesday, January 28, 2004. I would now like to turn the conference over to Mr. David Sutcliffe, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you very much operator and welcome to the call all of our stakeholders. With me here in the Company's offices, are Peter Roberts, Chief Financial Officer; and Jason Cohenour, Senior Vice President of Worldwide Sales. We will be covering -- Peter will be going first this afternoon, we will have the forward-looking statements disclaimer and then our Q4 and 2003 financial results. That will be followed by Jason Cohenour giving an update on business highlights, our product plans, and we will round that out, with our Q1 financial guidance, and a summary after which we will take questions. So, with that, I will turn it over to Peter.

Thank you, David. Good afternoon everybody. For the record, our forward-looking statements disclaimer: Forward-looking statements involve risks and uncertainties, including, but not limited to, changes in technology and changes in the wireless data communications market. These forward-looking statements relate to, among other things, statements about future market conditions, supply conditions, channel and end customer demand conditions, revenues, gross margins, operating expenses, profits and other expectations, intentions and plans that are not historical facts. Our expectations regarding future revenues and earnings depend in part upon our ability to develop, manufacture and supply products, which we do not produce today and that meet defined specifications. They also depend on bringing the Voq Professional Phone to the market. In light of the many risks and uncertainties surrounding the wireless data communications market, we cannot assure you that the forward-looking statements discussed will be realized.

To our financial results - Our results are reported in U.S. dollars and in accordance with U.S. GAAP. For the three months ended, December 31, 2003, our revenue was $34.6m, operating expenses were $13.0m, our net earnings were $1.9m, and our diluted earnings per share were 8 cents. Fourth quarter revenue was $34.6m, better than our guidance of a range of $30-32m. Gross margin was 41.1%, better than our guidance of approximately 39-40%. Net earnings were $1.9m, better than our guidance of a loss of a range of $200,000-300,000. Cash flow was positive to $17.3m. Excluding integration costs related to AirPrime and the cash flow and interest effects related to our secondary offering, operating expenses were $12.1m, slightly higher than our guidance range of $10.5-11.8m. Net earnings were $2.7m or diluted earnings per share of 13 cents. And this is better than our guidance range of $1-1.3m or diluted earnings per share of a range of 5-6 cents.

Cash flow was positive to $2.3m. We had about $400,000 in recovery from previously written down 2g inventories. The net effect was a 0.6% improvement in our gross margin. Integration costs for AirPrime came in well under expectations in Q4 at $900,000. At December 31, 2003, our integration activities were substantially complete.

Our sequential financial performance comparing Q4, 2003 to Q3, 2003. Revenue increase to $34.6m from $26.2m, an increase of 31.7%. Gross margin percentage improved slightly to 41.1% from 40.7%. Operating expenses were $13m in Q4 compared to $11.5m in Q3. Operating expense excluding integration costs were $12.1m in Q4 compared to $9.5m in Q3, 2003, excluding restructuring costs, integration costs and the Metrocom recovery.

Net earnings were $1.9m in Q4 compared to a net loss of $900,000 in Q3. Net earnings excluding integration costs were $2.8m or diluted earnings per share of 12 cents compared to net earnings excluding restructuring costs, integration costs and the Metrocom recovery of $1.1m or diluted earnings per share of 6 cents in Q3. Revenue increased due to a continued increase in sales coming from our 2.5g products and because there was full quarter of consolidated activity. Our gross margins percentage improved slightly due to strong ASP management and to product cost reductions that were partially offset by changes in product mix. Our operating expenses increased as a result of the addition of staff and projects related to the AirPrime acquisition for a full quarter and development and marketing costs associated to the Voq Professional Phone.

Our financial performance for the year compared to fiscal 2002. Revenue for the year was $101.7m in 2003 compared to $77.3m in 2002. Gross margin was $41.2m or 40.5% of revenue compared to $8m or 10.4% of revenue. Operating expenses were $39.7m compared to $46.4m in 2002. Excluding restructuring costs, integration costs, and the Metrocom recovery, operating expenses were $37m compared to $35.4m. Net earnings were $2.3m compared to a net loss of $41.7m. Excluding restructuring costs, integration costs and the Metrocom recovery, net earnings was $4.9m compared to a net loss of $5.8m in 2002.

Revenue increased by 31.6% due to an increase in sales of our 2.5g products and an increase in sales to channels in Europe and the Asia-Pacific region. Gross margin improvements were due to a higher mix of 2.5g AirCard products, which yielded a higher margins than OEM products and product cost reductions. Operating expenses excluding the impact of restructuring, integration and the Metrocom recovery, increased due to additional staff and projects from the AirPrime acquisition and decrease third party R&D spending in 2003.

Turning now to our follow-on financing in the fourth quarter. We completed a public offering of 4.6m common shares in the United States and Canada at a price of $16.25 per share. Under the offering, which included the shares issuable upon the exercise by the underwriters of the over-allotment option, we sold 4,422,222 common shares from treasury, and two retiring officers sold an aggregate of 157,778 common shares by way of a secondary offering. Our proceeds, net of commission and expenses of the offering, were approximately $67.4m.

To our balance sheet and comparing it to September 30, 2003: Cash, short-term and long-term investments increased by $70.3m to $109.7m from $39.4m. The increase is due to the net proceeds of $67.4m from our follow-on financing and $2.9m cash generated primarily from operating earnings and working capital flows.

Our trade accounts receivables, DSO, decreased to 36 days from 39 days, which is below our target of 60 days. Net inventory decreased to $1.5m from $2.9m. I’ll turn it over to Jason for business development commentary.

Thank you, Peter. In this section, I will provide some business development highlights and some segmented financial performance. First, the business development highlights. In October, we announced our Voq line of professional phones in a value-added software for business users, new Voq branded professional phones will be based on the Microsoft Windows Mobile platform for smart phones and will feature both the familiar phone keypad plus the unique flip open corded phone pad. The first Voq model will support global markets by operating over the GSM/GPRS networks and will be commercially available in the second quarter of 2004.

We also announced the addition of the Sierra Wireless AirCard 580 to our product line. The AirCard 580 is a wide area, wireless PC card for CDMA, DVD, or networks. The AirCard 580, which commences commercial shipments this quarter, Q1 of this year, we’ll provide mobile professionals with wireless data access speeds of up to 2.4 megabits per second.

In China, we decided distribution agreement with Putian Easton Communications Group, commonly called Eastcom for the distribution of the Sierra Wireless AirCard 555. Eastcom will bundle the AirCard 555 with China Unicom’s data service and provide wireless solutions to enterprise customers and mobile professionals. Now, I’ll add to that qualitatively that we are continuing to expand and diversify our presence in China as well as other Pacific Rim countries.

Also, we reached a significant milestone in our global distribution of wireless products and solutions by shipping out 1m units, which happened to be an AirCard 555. We presented this milestone unit along with the Verizon Wireless to Liebert Corporation, who is an Emerson Network Power Company. Liebert has one of the world’s largest field service teams dedicated to the maintenance and onsite repair of computer support systems. Liebert Global Services was clipping its team of service professionals with AirCard 555 operating on the Verizon Wireless's national access network with a goal to empower its employees with fast wireless access to information.

I'll now move to some financial performance segmented. I'll begin by product category. Sales for the fourth quarter or revenue from our MP products was flat as a percentage of revenue compared to Q3 at 6%. Revenue from our AirCard products dropped slightly as a percentage of revenue from 68% of sales in Q3 to 59% of sales in Q4. Revenue from our OEM products increased as a percentage of revenue from 21% in Q3 to 32% in Q4. Revenues from our AirCard products and OEM products were very strong in Q4.

Moving on to revenues by distribution channel. Revenue as a percentage -- sales as a percentage of revenue from carriers -- wireless carriers was down slightly from 47% in Q3 to 42% in Q4. Revenue through our value-added reseller channel was down slightly as a percentage of sales from 29% in Q3 to 25% in Q4 and revenue through our OEM channel increased substantially from 23% in Q3 to 33% in Q4, and sales that were made directly to customers was flat at 0%, which highlights that are 3 major indirect channels continue to be strong.

Moving to revenue by technology platform. Sales of our GPRS products were flat as a percentage of sales at 27% in Q4 compared to 27% in Q3. Sales of our CDMA products were up slightly as a percentage of revenue from 66% in Q3 to 69% in Q4 and sales of CDPD products -- CDPD and other products drop slightly from 6% to say [inaudible] Q3 [inaudible] in Q4. Revenue from new products that are products that were introduced in the past 24 months represented 94% of our revenue in Q4.

Moving to revenues by geographical segments. Revenue in the Americas was 89% of total revenues in Q4 that’s up from 81% of total revenues in Q3. In Europe, our revenue represented 5% of sales in Q4, which is down from 15% of revenue in Q3. And in Asia-Pacific, sales were 6% of total revenue, which is up from 4% of total revenue in Q3. On the year, sales in the America's represented 74% of our sales in 2003 that’s compared to 87% of sales in 2002. In Europe, total sales for 2003 represented 13% of revenue versus 7% in 2002 and Asia-Pacific represented 13% of our sales in 2003, which is up from 6% of our sales in 2002. But notwithstanding Q4 on the year, we had substantial growth in both Europe and Asia-Pacific as a percentage of total revenue.

Now moving to an update on supply agreements. As most of you know, we have agreements with large minimum volumes commitments with AT&T wireless, Sprint TCS, and Verizon wireless. We have now completed the minimum volume shipments on all 3 agreements and have received follow-on orders from all 3 carriers for quantities beyond their agreed volume commitments. These follow-on orders were driven by strong end-user adoption and sell through.

Now, I'll provide some qualitative update on demand trends next. In the first quarter of 2004, we expect Asia-Pacific demand to increase again. We expect our demand in the [inaudible] to be stable and we expect demand in North America to be very strong again. Demand has increased industry wide and consequently component lead times are lengthening. Our AirCard demand continues to grow and our OEM demand is gaining momentum. Bookings that is new orders and sell through are both accelerating.

There were also a couple of industry development that also have an impact on our demand, which I will comment on next. The AT&T launched their EDGE Network in December of 2003 and this is significant to us as we plan to launch a well-differentiated EDGE AirCard in Q3 of this year. Also in January -- January of '04, Verizon announced a $1b 2-year national rollout of their of CDMA EV-DO service, expanding the service from the 2 trial seats of San Diego and Washington DC. And this news is significant to us as we are already providing EV-DO PC Cards to Verizon in support of their 2-city trial.

Moving to the product update, we expect to commence trial of our EDGE AirCard in Q2 of 2004 and expect to begin volume shipments in Q3 of 2004. We are also planning to release of additional EV-DO products during the year starting with our AirCard 580, which is our second EV-DO PC Card, which we expect to commence shipping this quarter. On the Voq Professional Phone, we have commenced network testing of the Voq with 2 North American carriers and several European carriers. We've also commenced end customer data testing in both North America and Europe. These initial trials cover approximately 20 companies. We have signed our first European launch commitment with a carrier in a mid-tier market. We expect to add tier 1, North American and European carriers partners in Q1 and Q2 of this year. We continue to get great support from our strategic partners Microsoft, Intel, Flextronics, and I reiterate that we expect to commence commercial shipment in the second quarter of 2004.

I'll now pass it back to Peter for guidance.

Thanks Jason. We are providing guidance for the first quarter ended March 31, 2004 and this reflects our current business indicators and expectations. Inherent in this guidance are risk factors that are described in detail in our regulatory filings. All these figures are estimates and are based on management's current belief and assumptions and are subject to change. Our actual results could differ materially from those presented below. So, Q1 2004 revenues - a range of $35-37m. So the sequential growth guiding [inaudible] growth in this quarter whereas normally seasonally this quarter is softer and can be done from [less] to 10%. The gross margin - a range of 39-40%; you may recall this is the same guidance we gave for the last quarter and impacting this is impact of mix. Operating expenses - a range of 12.8-13.2m. Net earnings approximately $1.5m or 6 cents a share; this reflects the increased number of shares that are outstanding as a result of our follow-on financing in Q4. And cash flow - we are guiding it to be neutral; there will be positive cash flow from our operations and it will be neutral after the impact of non-operating items. With that now I will turn it over to David for a summary.

Thank you, Peter, and thank you, Jason as well. Starting with Q4 in 2003, we've reported our sixth consecutive quarter of revenue growth, profitability, positive cash flow. We substantially completed the AirPrime business integration on schedule below our cost target. The shipments to the AirCard and the embedded modules grew quite significantly, and the North American revenues were up for the quarter. We've received follow-on orders from major carriers beyond their initial volume commitments, reflecting the strong sell through that Jason described. In the fourth quarter, we shipped 1m units, and in 2003 we delivered our first $100m revenue year. We achieved profitability for the quarter and for the whole year, and we are profitable even after the expenses associated with restructuring and integration of the AirPrime acquisition.

Turning to the first quarter in 2004, our bookings are up and our visibility for Q1 is good. We're guiding for sequential quarterly growth in Q1, which is better then the seasonality we normally experience in Q1. We plan to bring our new Voq Professional Phone to market in Q2. And starting in Q1 and running through the year, we expect to introduce a series of new products for the EVDO and Edge networks. Our business priorities continue to be expansion of our distribution channel, sell through to end customers, and continued investment for future growth. And with positive cash flow and the proceeds from the recent financing, we feel we are very well positioned to capitalize on opportunities for future growth. With that, operator we will turn it over to our stakeholders for any questions.

Thank you, ladies and gentlemen. If you would like to ask a question please press [inaudible]. You will hear a three-tone prompt tone to acknowledge your request. If your question has been answered and you would like to withdraw your registration please press the "1": followed by the "3". If you are using a speakerphone please lift your handset before entering your request. One moment please for the first question. Our first question comes from the line of Mike Walkley with RBC Capital Management -- Markets. Please proceed sir.

Great thanks. Congratulations on a great quarter. I was wondering may be if you could start with the Voq phone, I was just wondering in your Q1 guidance if there is any pre-shipments included in that guidance of the Voq phone as to what we could look for that for Q2?

You should look for that in Q2 Mike.

Okay so no early revenue there. And then in terms of just helping a [inaudible], can you give us a feel for may be what do you think ASPs would be in, may be [inaudible] units you would expect with a typical average carrier launch?

Mike it's David, I think the plan with carrier launches is less to focus on initial volume commitment than it is to focus on getting the carrier signed up to the marketing program commitments associated with an aggressive launch of the product. So I don't think you want to focus on us receiving and shipping large volumes of product through the channel. So much is focused on us getting the channel signed up to major launch programs. And then our revenue profile would be the shipments of an initial load on product to get the channel prime and following that prime -- the channel volume, our shipments in revenues will be derived entirely from sell through.

Okay, great.

Pertaining to [ASN] that is our business model. I appreciate that at times we worked on large volume commitments but on Voq our focus is on carrier launch commitment and leveraging the carriers marketing resources and channels to the business customers rather than on negotiating large volume commitments in advance of demand. On ASP we've not provided a lot of specific guidance on ASP yet for the Voq product other than to say we expect to position it at the high end of the price range for high end feature phones and below the price range for many wireless-enabled PDAs.

Okay. Outside -- definitely we will hear on the -- next year launch of you Edge product. Can you just update me on WCDMA products and when you think those networks will be -- we're seeing a lot of visibility from launching later this year, when do you think you might have products for the WCDMA market on the AirCard side?

Mike this is Jason, just from a UMTS network launch standpoint, as you have mentioned, we have seen some noise, in particular out of Europe, a little bit out of AT&T. Over the course of 2004 we expect to see limited commercial service launches by carriers - both in Europe and in North America. We are watching that very closely; we do indeed have a plan to bring a UMTS product to market. But I wouldn't expect to see that until early 2005 and that's when we believe the networks will be deployed in critical mass and there will actually be a significant user base and opportunity to sell the products through.

Okay, great. And last question and I will pass it on. In terms of EVDO has -- in your discussions with Verizon, are they giving any kind of visibility on the products that they would expect from you and potential competition for your AirCards?

Well we always -- only the paranoids survive. So we always anticipate that there will be competition; we can' have an exclusive spot in the Verizon channel forever - we understand that. And I think both we and Verizon anticipate that demand for EVDO will represent a substantial increase over the demand for 1x. If 1x demonstrated anything that speed matters to end users. So we fully expect that will have a positive impact on end user adoption and sell through.

Okay, great. And then one last one for you Peter. Real quick, I wonder is there any update on the CFO search and how much longer hopefully will Peter stick around?

Well actually.

I will take the answer. So Peter is not handling that personal question. He is -- Peter will be with us, our current plan is, through to the end of March or the end of Q1, and we are well advanced in our CFO recruitment activities, and I expect that we will name the new CFO before the quarter is over.

Okay, great. Thanks a lot guys. Good quarter.

Thank you.

[inaudible].

Thank you and good evening gentlemen, I was just wondering maybe if you could drill a little bit further down the guidance, you said that there will be no Voq phone pre-revenue. I am just wondering do you expect sort of all your traditional phones to be sequentially up or do you see sort of the AirCards and [inaudible] being replaced by OEM, how do you -- can you give us maybe a little bit more granularity there?

Our expectation is that we will see growth in Q1 from both the AirCard product category and also from the embedded module product category. OEM, of course, is gaining momentum, as Jason described, and grew from 21% of our mix in Q3 to 32% in Q4. OEM should have another strong quarter in Q1 but that’s a strong quarter in its own and I think there will be absolute growth in PC cards or AirCards as well during the first quarter. And just for clarification on our guidance and Voq status, we do -- we are already shipping Voq products into carrier troughs and into end customer beta trials, and we may well have some commercial shipments occurred during the first quarter, but from a guidance point of view, the guidance reflects the core business or the non-Voq business for Q1.

Okay, and may be if you could talk about the strengthening OEM, are you seeing that from purely existing customers, we haven't seen any sort of new design win announcements for the last little while, is it just increased volume from existing customer base?

It is increased volume from existing customer base and one thing I would point out is that we are noticing -- I won't say from every existing OEM customer, but the increase in volume is fairly broad-based across quite a number of our existing OEM and a number of our different OEM products. So, it's a fairly broad based trends we are seeing develop.

Okay, may be if we could talk a bit about OPEX going to Q1, obviously, there is a lot of launch costs, looking into the sort of remainder of the year, do you expect that sort of the 13m range kind of a run rate or should we see that come off a bit as you guys expect to launch these products and get to carry these ramped up in Voq etc.?

I think that’s probably a reasonable, you know, not having given guidance for Q2 through Q4, but I think that’s probably a reasonable run rate assumption at least for the next couple of quarters. And the other thing I would mention, of course, that’s an absolute dollar figure and our business has grown quite significantly in the last four quarters and we are expecting more growth in Q1. The other way to look at our operating expense is on business model basis or a percentage of revenue basis since there we expect our target business model which we expect to grow into is R&D expenses in the 10-12% range, G&A of about 5%, sales and marketing of 12-14% and so that’s another way to benchmark our OPEX over the longer-term.

[inaudible] and one last question, on EVDO, how -- is that a significantly contributor to your [inaudible] in Q4 and do you expect that is one of the reasons why Q1 [has been] sequentially up [inaudible]?

Yeah, sales of EVDO products represented a significant -- not substantial percentage of Q4 sales and we do anticipate that will increase as a percentage of sales in Q1 and into Q2.

Great, thanks very much and congratulations.

Thank you.

Thank you. Our next question comes from the line of Deepak Chopra with National Bank Financials, please proceed with your question sir.

Hi, this is Deepak here, good evening guys.

Thank you, yeah, good evening.

I was wondering in your last quarterly conference call you talked about, you know, about the increasing types of competition and may be a little bit of pressure in terms of ASPs and may be on the margin, but [inaudible] did you really see any of that this quarter and may be give us some color on what you seeing in terms of going forward?

We commented on that last quarter, specifically in commenting on some of the geographic areas in our business performance and I’ll turn that to Jason to give you an update.

Yeah, Deepak, we see competition, obviously, we’re aware of competition in all of our regions, but if I had to pick regions where competition was particularly fierce, I’d have to say it’s quite strong in Europe and in Asia. In Europe, one of our challenges is not only competition in our current GPRS space, you know, against the likes of option in Sony Ericsson, but there is also a bit as a technology overhang and confusion in the market on UMTS. So, that definitely affects our business there as well as EDGE for that matter. And in Asia-Pacific, more of the same as we reported last quarter, but I think we’ve just been more effective in Q4 and our forecast is that we’ll be more effective on a going forward basis in combating that competition and we’re doing that by aggressively diversifying our channel position there and by adding a -- blending in additional products, specifically our CDMA product line.

So, it really is the strength -- the company strength in the CDMA product portfolio that’s driving the margin in terms your [inaudible]?

We had excellent margins in our GPRS product line as well and as you saw, GRPS contributed 27% of our revenue in Q4, flat as a percentage of sales compared to Q3. So, clearly we had significant dollar growth and gross margin growth in GPRS in Q4.

Okay, fair enough. In terms of the CDPD networks, you know, coming offline here, I think they can keep sort of mid this year, have you seen a replacement cycle from that user base start moving over, you know, to the nearer [geocentric] GPRS, TDMA or are you still finding that, you know, that’s the trend you are going to see increasingly in the coming quarters?

Yeah, well we definitely experienced it in Q4 and we see that trend accelerating. We’re in the middle of the migration pretty significantly -- significantly aggressive migration move now and getting customers off CDPD and on to next-gen networks and we certainly benefited from that in Q4 and our forecast is that we’ll continue to benefit from that.

Would you guys have a sense in terms of the number of users on the CDPD networks at this point like total amount?

No, that’s very hard to estimate without giving information that that’s considered proprietary by the two major remaining CDPD carriers, AT&T, Verizon. So, I think we shouldn't do that. I know that's --.

In terms of [inaudible] block, you guys have mentioned, we probably wanted a large agreement to be outperformed, but have you talked to the carriers about the subsidies on the devices and you know as the products ramp, should we expect that your sales and marketing line also will ramp as you have to support the carriers in their launches?

Well, I think on subsidies, we expect that the product will be subsidized by the carrier channel as are almost all high-end phones in the market today and on our sales of marketing OPEX line, we are ramping our sales and marketing OPEX in advance of volume shipment, because we have a lot of product launch and startup cost in sales and marketing. So, once we get our carrier channels on stream, we, you know, our rate of sales and marketing OPEX growth should fit the business model I described earlier in the call and it should not grow anywhere near it's past as the revenue line. The strategy is very much to focus on getting the carriers signed up for significant launch focuses and to leveraging their existing marketing stand to focus on this particular product and category.

Okay and just one last one. Your target -- or could you give a target gross margin in that model.

Our target gross margins are 40-42%.

Okay, great quarter guys. Thank you.

Thank you very much, Deepak.

Thank you. Our next question comes from the line of John Bucher with Harris Nesbitt, please proceed with your question.

I know your policy is to provide financial outlook one quarter in advance, but -- it looks like you are in advanced discussions with a number of carriers on the Voq Smartphone in both North America and Europe and given that you know lead time is lengthening for components, I'm wondering if you have a target range that you might be able to share just in terms of units for the entire 2004 year that the Voq might constitute, if not that if you can just give an estimate on the product category mix on what we might expect for the full year, may be like a high best case or low case?

Okay, John I think on the first part of your question simply because we are not providing guidance past the quarter, I'm not going to try and estimate units, but I'll put my head a little bit of the ways into the news and tell you that for the year we think the product category could be as much as 20% of total revenues and much will depend on how quick of a start it gets off to in the channels and with the enterprise customers. I'll be happy with the lower figure and pleased with 20% and I suppose there is upside from there as well. It is a very early days to be trying to put the pin in on that kind of estimates.

Thank you very much for that and one final question. Did the tight component supply conditions adversely impact unit shipment rate for any good product during the December quarter?

Yes, they did.

So you would have shipped more had they not been the component constrains for the December quarter?

Yeah, that's correct.

Do you expect that it would be the case for the March quarter.

We are expecting components constrains to continue to be part of our environment for some quarters to come and how many we don't know because we don’t have a crystal ball on the overall industry demand, but this is a phenomenon as the company has managed through in at least two prior business cycles. So we understand how to manage it. It can create [inaudible] $20-30m in October we raised to 33, we actually executed it on 34.5m and yes we could have a got a little more -- we would have a unconstrained component environment.

Thank you very much, [inaudible] results.

Thank you very much as well.

Thank you. Your next question comes from the line of Chris Umiastowski from Orion Securities.

Hi guys, it's a really impressive quarter. Just want to throw in my congrats there. Just first of all, Jason, can you define significant earlier that you said that your AirCard with significant, but not substantial for you? And it will only be a minimum percentage that you would find a significant?

You know I [inaudible].

[inaudible] comment I can make for you Chris [inaudible] Washington DC, the phenomenon we [inaudible] piece of that was compatible items [inaudible]. In Q4 we actually [inaudible] CDMA be [inaudible] revenues they chose the [inaudible] percentage would suggest [inaudible] markets other than Washington and San Diego [inaudible] our market and taking [inaudible].

My question was going to [inaudible] see now and [inaudible] what is a -- [inaudible] potential when involving [inaudible] to answer my next question --- use that they will -- you have used as a [inaudible]your concern [inaudible] -- pushing that instead over the may be [inaudible].

Well there is a couple [inaudible] -- for having making -- a [inaudible] technical question to answer do I deploy [inaudible] and some will fall into each of those three categories. For the customers that fall into the first two categories, we have the best 1x product line in the industry, and we have the only commercially available in North America EVDO product offering [inaudible] and so EVDO product offering [inaudible] due to approve the customers purchase decision at least on the hardware.

Okay. So [inaudible] to what the biggest sensitivity factor you've rolled in the couple of years. I am looking at -- EV-DO is always going to be it can one year before, its seriously [inaudible] available in the U.S., 2 years [inaudible] completion, [inaudible] the same kind of thing with your UMTS in Europe, not really [inaudible] the next year. And then Edge [inaudible] you know, another 9 months or so. Does that [inaudible] VOq is the biggest single [inaudible] factor over the next, call it year or two?

Well, it is -- obviously we are focused zero today. I can't answer that in percentage terms meaningfully, but in absolute dollar growth terms, we are modeling more growth out of our core business in 2004 than we are modeling out of our first partial year of Voq sales in 2004. And so to the essence of your question, no, we don’t feel like we have a growth constraint in our core products market. And in fact, we grew our top-line 11% in '01, 24% in '02, we've [inaudible] in '03 and all of those growth figures are dollar [inaudible] rather than unit figures of course are even higher [inaudible] and we don’t feel like we are going into 2004 [inaudible] with a low growth rate [inaudible].

[inaudible] position with TDMA dominating your sales [inaudible] strength, and [inaudible], what feel here, [inaudible] too early on? Are you feeling quite [inaudible] the whole fact that 3G is TDMA-based, you know, you don’t have a meaningfully strong TDMA competitor [inaudible] Verizon Network, you know, that thing just brought here, you know, the fact that you just bought one of your big competitors, [inaudible] [inaudible] so there, you know, [inaudible] growth opportunities [inaudible] but where [inaudible] same environment, [inaudible] fact that they do in attractive market, that will help in the point [inaudible] and take much of the [inaudible] option have [inaudible]?

Well, you know, I think that [inaudible] management team that [inaudible] from zero revenue [inaudible] use [inaudible] 9 years ago [inaudible] 2003, We've [inaudible] 3 [inaudible] years in the industrial 3 years, we've [inaudible] tradition so [inaudible] setting the growth [inaudible] coming [inaudible] three, with all the challenges post the bubble, and -- so we spend a lot of time worrying about all the things that can go wrong and doing our [inaudible] to control all [inaudible] of the things that we have the ability to control. So excitement and worry go together, when you are going through a cycle like this.

Okay. That’s it for my question. I appreciate your time guys and great job in the quarter.

Thank you very much.

Our next question comes from the line of Andrew Lee (ph.) please proceed with your question sir.

I thought that the [inaudible] your comment you had Jason [inaudible] to be specific with AirCard line or with that comment of [inaudible] AirPrime acquisition for your TDMA [inaudible].

It would actually apply to both but it's on a minimal [inaudible] difference for us with pre-acquisition they were for our AirCard product line. So we actually saw our reorders [inaudible] for that line in addition to our product lines acquired by through the AirPrime transaction.

Okay, just to confirm that they are still offering the AirCard 555. You had a discussion with them and even on the website there been a [inaudible] is that going to [inaudible].

[inaudible] are selling it and customers [inaudible] on component of our current demand.

Great. I think [inaudible].

I didn’t know that [inaudible] public domain, so we [inaudible].

[inaudible] thanks a lot.

Next [inaudible] will come from [inaudible].

[inaudible].

[inaudible] we don't have to share with our [inaudible] significant [inaudible] and the third thing is [inaudible] our ability to get substantial volume out of that market and we are starting to [inaudible] we are only offering for the two quarters in Europe. So all of that will put some pressure on our ability to have Europe contribute significant percentage of [inaudible] revenue in the first half. You know we are going to [inaudible] by new product introduction and by having [inaudible]. In Asia-Pacific we see a recovery in business, and we are forecasting significant -- continued significant growth out of Asia-Pacific, mainly as a result of a very strong carrier push and promotion and aggressive new channel development on our part and in the introduction of multiple products into that market as well, so there is no significant technology overhang in our Asian markets. We don’t have that to contend with. So in Asia you are looking at, you know, at least a two platform play and multiple product variance i.e. GPRS and CDMA. As we feel pretty good about the outlook for Asia-Pacific and our imperative position there and in North America, [inaudible] it's a bit of [inaudible] right now. The customer sell through is very strong, customer adoption is very strong, and we enjoyed a very strong market share position. So we are forecast a continued strength in the North American region.

Can you talk to -- can you tell why the revenue has fallen like in Europe from about 4.9 to 1.7m quarterly. Have you [inaudible] diluting share for the competitors or is that, you know, sold initially through channel [inaudible] sell through?

But I think I just told you the three reasons that the reason is share, the reason is market immaturity, which means there is slow sell through and the third reason is technology overhang and confusion.

It is [inaudible] if you get the this kind of [inaudible] when you are expecting what's your potential with the, you know, that move up the delivery date for UMTS AirCards?

We have good ability to accelerate time to market on new UMTS and the timeframe that we gave you was based on our view of the market and not necessarily based on the view of development or time to market on a product.

So you did get a percent with late ’04 if you had to?

We certainly could have at this point in time, we certainly could. If we had a view that we should do that and their current view is that you don’t get, does represent a real opportunity in Europe and a negligible opportunity in North America and that other things were working on such as EDGE had representing in nearer terms and more immediate opportunity in both North America and Europe. Not to mention the new Voq Professional Phone, which is also end up both those markets. This really is where do you spend your resources and your time and attention. We think we can get a greater payback out of working on EV-DO, on EDGE, and on VOq. And that will be a greater payback in the European market as well. In the case of EDGE and Voq, then we could get by spending the same resources at this point in time upon UMTS.

Thanks a lot.

Thank you.

Our question comes from Glen Tracey of Pacific International Securities. Please proceed with the question.

Thanks very much. A lot of questions have been answered, but I just wanted to go back to the drivers for Q4 revenue and what you are projecting for Q1. I just like to understand I guess as far as the OEM business in Q4, which was obviously up significantly with their plan. How much visibility do you have to these sell through of the products as those components were going into?

Okay, well as the first thing I comment is that the OEM business is a business that both Sierra in part the combination AirPrime were engaged in and our Q4 growth in OEM was broad based across more than one OEM product line and across multiple OEM customers exist and you shouldn’t have the sense that it’s narrowly based on the customer base or products of a single one of the two companies that are being combined. And then secondly, our visibility on sell through on OEM is the weakest area in terms of sell through visibility of our business. The design cycle, the lead time on manufacturing and the sell cycle for the resulting end product are all longer cycles than other areas of our business such as the PC card business, first. And secondly, we don’t have the same sales and marketing, co-marketing engagement, the same degree of co-market engagement with an OEM customer selling to their end customers that we do with our channels selling PC cards to businesses. So, that’s an area where we get less visibility and it takes longer to develop the visibility and that’s certainly -- it doesn’t mean we don’t pay attention to it but it’s difficult to get data good there early on.

Do you have a feeling as to the increase in OEM’s sales that happened in Q4? How much of that was targeted towards final products that are being introduced to the market as opposed to products that are already exist in the market and the OEM customers and simply increase the amount production [point] there?

Substantially, all of our Q4 OEM business would have been shipments to companies or OEM companies for products that they already have on the market.

Okay, and in the case of Trio 600 it is obvious [inaudible] talk about it, I think, but in that case the Trio 600 still channel selling during that time? I would still consider that kind of new product to market, do you also consider new product to market or are you considering this as available already?

Well, in answering your question, I considered the Trio 600 to be an existing product because it started commercially shipping into the channels as I recall in September and recently started shipping products to that time Handspring in the third quarter. So, in the fourth quarter we got new -- we fulfilled open orders and got new orders for OEM products like the Trio 600 that were already in the market when the fourth quarter commenced. Now, to the extent that your view or anyone’s view of the Trio 600 is it’s still selling channels, that’s a view that I don’t want to either endorse or refute and I think it’s sort of an independent view of Trio 600 channels and customers sell through [partly] obtainable by doing some work with channels like Sprint and by talking to palmOne.

Okay. Going into Q1, you mentioned already that you could have [still marked] Q4 had it not been for some component constraints. Just trying to get an idea of -- for the guidance that you have for Q1 now. How much of these increase is a function of what you weren’t able to sell in Q4 versus stronger demand that you are seeing?

Well, the -- in the way you posed that question is doesn’t [get help] our business works, I mean we are seeing stronger demand and we've shipped against that demand in Q4. We are getting additional demand indicated to us through strong bookings and as Jason said book-to-bill greater than one, so we expect to grow our revenue again in Q1. You know, what you are essentially asking is, what was the dollar value of shipments that didn’t go out on December 31 that will contribute to Q1 but I’ll point out that once you are in a tight components environment which we did flag last quarter as well, you always, you have this phenomenon every quarter. So, it’s not just Q4 to Q1 it’s a phenomenon went into Q4 with. [inaudible] we had an opportunity to ship more product in Q3 and couldn’t because of component constraints. That repeated itself in Q4; it will probably repeat itself again in Q1 and our guidance reflects that along all of the other factors that are able to address in our business.

Okay. I understand that. Again last time [inaudible] it wasn’t a lot of [inaudible] with regard to your contribution to SFU. What I just wanted comment some [inaudible] somebody [inaudible] area that I appreciate the fact that a company like Sierra Wireless is stepping up and making contributions back in community and that the local technology community, so I think its some [inaudible] should be and I appreciate it.

Well thanks. Thank you very much Glenn (ph.). It's a representative of a number of things that we have done and frankly if you go on do good things you don’t always get recognized [inaudible] at the time there are still good things to do and we very much appreciate your feedback.

Once again congratulations on a great quarter. I look forward to a great Q1.

Thank you. And operator I think at this point we’ll take one more question if there is one and [inaudible] have to wrap up.

Okay sir, [inaudible].

Hi guys congratulations on a wonderful quarter. I wanted to ask a few questions. First of all if you could help us understand the outlook for [inaudible] in the coming quarter, I know you have a guidance on the quarter. Do you expect [inaudible] up, do you expect it to be up more or less than the corporate average. If you can help us understand that?

Well prior to the quarter beginning, we are not providing guidance on platform revenue by platform, but I can tell you that GPRS does feature significantly in our Q1 forecast.

Okay. Also I wanted to understand better if you could tell us who the 10% customers are for you?

Okay. We do not report customers by name, but we can tell that for the fourth quarter, our top five customers represented 54% of our business, and no one of those customers was over a 20% threshold.

So can you help us then understand if you had 10% customers for instance in that OEM sector?

Well who the top 10% -- who the over 10% customers are does vary quarter to quarter, because we don’t name them. It's very difficult to answer your question. So I can just say that we saw a pretty strong performance out of a diverse mix of customer spanning both wireless carrier, distributors, and OEM customers in that top five.

Okay. You mentioned that you were component constrained in the quarter. Can you help us understand which areas were constrained; which type of components were constrained so that we can monitor them?

Well I'd like to buy share in those companies too.

We would like to just monitor them?

I was trying to be light-hearted there. We can't identify specific components, and frankly I can tell you that although there has been a number of question about this, the constraints on our Q4 revenue based on components were very mild constraints on our total business, not an acute constraint and the reason reflected at all on the call here, as we did in last quarter's call is because if the environment -- the industry wide environmental change that we have been noticing in the last of couple quarters as overall wireless industry demand has going up. The component supply chain has been tightening and companies that don’t recognize that are going to get into execution problems and companies that do recognize that have managed it very carefully. On the one hand you don’t want to be sure on any customer order, and on the other hand you don’t want to hit the -- kill the mosquito with a flush hammer. So there is a balance [inaudible] between ordering enough and ordering too much, and I think the earlier question was were we excited or worried [inaudible]. So on component supply, the tighter environment, we got to make commitments further in advance. We are not going to itemize the particular components that create supply constraints from time to time, and we will keep reporting on what the environment looks like in this as we have in future calls as well.

Hey I appreciate that. I just had a couple of quick ones. May be you can help me understand what the gross margin difference, if there is any, is expected to be on EVDO product versus current CDMA [inaudible]?

Gross margin on our EV-DO product is expected to be consistent with our [inaudible] with our 1x cards or GPRS cards.

And then the last question has to do with EDGE. You said you wanted to get into the EDGE market more significantly in the second half of this [inaudible] can you help me understand where ASPs are now on EDGE and where do you think they'll be roughly in the third quarter?

I think [inaudible] our EDGE product is very, very well advanced in the development process. We expect to go to a formal carrier and customer with our first transferred into our first PC card, this is will be AirCard 775 and those customer trials and carrier trials we expect to have in Q2. We expect to commence commercial volume shipments of that AirCard 775 in Q3 and have it contribute to our second half revenue. [inaudible] the only competitive EDGE PC card that I am aware of in the market today is one offered by SonyEricsson and I don’t know what their ASPs for that card are because by the time the price that we can see is a price that may have been channel subsidized and we all know what their terms are in supplying that product to their channel. That said, I would expect Sierra’s AirCard 775 to follow a long tradition of AirCard products and be a very well differentiated product offering, particularly focused at the needs of business and enterprise customers and it will carry a premium price and a premium value [add] instead of features and differentiation for those customers. So you should expect that to happen as we go to market with that EDGE.

Okay, great. One last thing, this one is for Peter. Why is OPEX, I guess your business really sensitive to OPEX, your guiding OPEX up, what’s the behind the ramping up of OPEX. Why -- does it flatten out at some point a little bit more? Why is it increasing, in line with sales or nearly in line with sales?

Okay. And as the starting one-by-one, the [inaudible] the AirPrime occurred in [inaudible] that’s an impact right where we have got more cost on [inaudible] the cost.

Yeah.

Specifically Q4 was [a comps] quarter we recorded a full quarter of consolidated OPEX with AirPrime.

Yeah.

We have -- we have made the comment that we will continue to invest and reinvest in new products and enhancements of existing products and that is our platform. The VOq is a very good example of that, so you will see going forward R&D growing, and you will also see, sales and marketing.

Okay. Great. Wonderful. Congratulations.

Thank you very much. And to everyone on the call, thank you very much. If we didn’t get to anyone’s question, then the management’s here at the company as usual, and are available for call. And operator, with that we will wrap up the call. Thank you very much.

Thank you, ladies and gentlemen that does conclude conference call for today. Thank you very much, and ask that you please disconnect your lines.