司亞樂 (SWIR) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Sierra Wireless, Inc. fourth quarter 2007 and full yearend 2007 results conference call. (OPERATOR INSTRUCTIONS.) I would like to remind everyone that this conference is being recorded today, Thursday, January 31st, 2008 at 5:30 p.m. Eastern Time.

I would now like to turn the conference over to Mr. Jason Cohenour, President and Chief Executive Officer. Please go ahead, sir.

Thanks, Luke. And good afternoon, everyone. Thanks for joining today's call. With me today is Dave McLennan, the Company's CFO.

The agenda for today's call is I'll kick things off with a brief introduction. Dave will read through the forward-looking statements disclaimer. I'll proceed with the business update, and Dave will cover Q4 and full year 2007 financial performance, as well as Q1 2008 financial guidance. I'll then summarize things, and we'll open the line up for questions.

So, Dave?

Great. Thanks, Jason, and good afternoon, everyone.

Our forward-looking disclaimer is as follows. Certain statements on this conference call that are not based on historical facts constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws. These forward-looking statements are not promises or guarantees of future performance but are only predictions that relate to future events, conditions, or circumstances or of our future results, performance, achievements, or developments. They are subject to substantial known and unknown risks, assumptions, uncertainties and other factors that could cause our actual results, performance, achievements, or developments in our business or in our industry to differ materially from those expressed, anticipated, or implied by such forward-looking statements.

Forward-looking statements include all financial guidance for the first quarter of 2008 and disclosure regarding possible events, conditions, circumstances, or results of operations that are based on assumptions about future economic conditions, courses of actions, and other future events.

We caution you not to place undue reliance upon such forward-looking statements which speak only as of the date they are made. These forward-looking statements appear in a number of different places and can be identified by words such as "may, estimates, projects, expects, intends, believes, plans, anticipates," or their negatives or other comparable words.

Forward-looking statements include statements regarding the outlook for our future operations, plans and timing for the introduction or enhancement of our services and products, statements concerning strategies or developments, statements about future market conditions, supply conditions and customer demand conditions, channel inventory and sell through, revenue, gross margin, operating expenses, profits, and forecast of future costs and expenditures, as well as statements about the outcome of legal proceedings and other expectations and intentions and plans that are not historical fact.

The risk factors and uncertainties that may affect our actual results, performance and achievements or developments are many and include among others our ability to develop, manufacture, supply, and market new products that we do not produce today that meet the needs of customers and gain commercial acceptance. Our reliance on the deployment of next generation networks by major wireless operators, component supply limitations, the continuous commitment of our customers, and increased competition.

These factors and others are discussed in our annual information form, which may be found on SEDAR and in our other regulatory filings with the Securities & Exchange Commission in the United States and the Provincial Securities Commissions in Canada.

Many of these factors and uncertainties are beyond the control of the Company, consequently, all forward-looking statements on this conference call are qualified by this cautionary statement, and there can be no assurance that actual results, performance, achievements, or developments anticipated by the Company will be realized.

And, finally, forward-looking statements are based on Management's current plans, estimates, projections, beliefs, and opinions, and the Company does not undertake any obligation to update forward-looking statements should the assumptions related to these plans, estimates, projections, beliefs, and opinions change.

With that, over to you, Jason.

Thank you, Dave.

In the fourth quarter of 2007 we experienced continued strong momentum in our business and achieved record quarterly revenue and earnings, despite a challenging component supply environment. During the quarter we had record revenue of $135.6 million, representing a 22% sequential increase over Q3 and a 98% YOY increase over Q4 of 2006. Our strong top line performance helped to drive earnings from operations of $13.3 million, our best result ever.

We also achieved important product milestones, including shipments of our new HSUPA AirCards and USB modems to operators around the world. Shipments of our new HSUPA products were a key factor in our strong sequential growth and helped lead the way to record revenue in each of our main business regions, the Americas, Asia, and Europe.

Overall, 2007 was a year of continued strong revenue growth and improving profitability for the Company. In 2007 we grew revenue by 99% to a record $439.9 million, and grew our earnings from operations by almost sevenfold compared to 2006. And while driving significantly improved operating results, we also diversified our business with the acquisition of AirLink and bolstered our strategic transaction capacity with a new equity issue.

Moving to specific updates on our product lines, I'll start with our AirCard business, which includes our USB products. AirCard sales increased approximately 31% compared to Q3 of 2007 and were up 98% compared to Q4 of 2006. Revenue from our AirCard products was constrained as a result of component supply limitations.

During Q4 we launched our new HSUPA AirCards and USB modems with AT&T Mobility in the U.S. and continued strong shipments of both products to Telstra in Australia, as well. In Europe we launched our new HSUPA ExpressCard with Bouyges Telecom in France, and in addition to Bouyges we received technical approval from several other operators in Europe for our new HSUPA products and have now commenced commercial shipments to these operators.

In Canada, we launched our AirCard 597 ExpressCard for Rev A networks with TELUS Mobility. We also introduced our new HSUPA USB modem, the Apex 880, which is smaller than previous models and has an innovative new industrial design and features. The Apex 880 is expected to commence commercial shipments in Q1 of 2008.

Moving to specific development highlights in our embedded modules business, sales of our embedded modules were $27.5 million, unchanged from Q3 2007 and up 66% compared to Q4 of 2006. Sales to [PC OEM] customers represented about 66% of our total embedded module sales for the quarter. Like our AirCard products, revenue from our embedded modules was constrained as a result of component supply limitations.

During Q4 Fujitsu Japan launched a notebook computer with our MC8780 HSUPA embedded module for use on the NTT DoCoMo Network. This milestone marks our first commercial launch of a product for the Japanese market.

Also during the quarter we secured a next generation platform design win with an existing PC OEM customer. We expanded our relationship with @Road, a Trimble Company and leader in MRM as they selected our MC8775 embedded module for their [HSDPA] enabled MRM solutions.

Notwithstanding the intensified competitive landscape with PC OEMs, we expect our overall OEM business to continue to grow in 2008. Over the past ten plus years we have built a strong, highly diverse OEM business, and have unrivaled experience in the space. We have over 50 OEM customers in total, representing a broad range of segments, including mobile computing, networking equipment, industrial handhelds, and MRM. We believe that the avenues for growth are many, and we're investing to expand our position.

Moving to mobile and M2M products, mobile and M2M sales were $10.9 million in Q4, up approximately 11% compared to Q3 of 2007. Our mobile and M2M results include revenue of $9.5 million from the sale of products from AirLink.

During the quarter we introduced the AirLink Raven XT, the newest addition to our line of mobile and M2M devices. Commercial shipments for the Raven XT for North American CDMA and GSM networks are expected to begin in the first quarter of 2008. The integration of AirLink is substantially complete. To date, integration costs have not been material. The AirLink transaction was accretive to earnings in both Q3 and Q4.

Our view of the mobile and M2M market is that it is a highly fragmented one from a segment, channel, and competition standpoint. Due to the fragmented nature of the business we believe it is fertile ground for profitable growth. We plan to invest in growing this business with new products and segments, geographical expansion, share gains, and potential M&A transactions.

On to some general comments, overall, we're very pleased with our record Q4 and full year 2007 results as they highlight continued strong revenue growth, improving profitability, and business model leverage. Our bookings during Q4 were strong and give us good visibility to Q1 2008 demand. Our channels also reported record sell through during the quarter.

While our Q1 demand outlook is very strong, our revenue outlook continues to be constrained by component supply limitations. Our already challenging component supply situation was made more difficult with the December 31st injunction against certain Qualcomm chipsets which we use in some of our products for U.S. customers.

Our Q1 2008 guidance fully considers these component supply limitations. We believe we will be in a stronger component supply situation in Q2.

As we look forward to 2008 we're encouraged by the continued strong growth in our market segments, our proven ability to execute in a competitive environment, and the strategic opportunities that lay ahead. Our expectations for 2008 are for continued revenue growth, improving profitability, and further business diversification.

Now, back to Dave for the financial results.

Thanks, Jason.

Our results are reported in U.S. dollars and are in accordance with U.S. GAAP. The fourth quarter of 2007 our revenue was a record $135.6 million. Gross margin was $37.8 million or 27.9% of revenue, and our net earnings were $11.5 million or $0.37 per diluted share.

Our results include $1.6 million of stock based compensation expense, of which $147,000 is in the cost of sales, and $1.4 million is in operating expenses. Also included is $800,000 of purchase price amortization associated with the acquisitions of AirLink in May 2000 -- in 2007, I should say, and AirPrime in 2003. On a proforma basis excluding these items net earnings were $13.3 million or $0.42 per diluted share.

Our cash and short-term investments totaled $196.4 million at the end of Q4 2007. This includes the generation of cash from operations of $17.7 million in Q4 and the net proceeds from the equity issue of $80.9 million.

Relative to the guidance we provided for the fourth quarter of '07, revenue of $135.6 million was better than our guidance of $125 million. Earnings from operations of $13.3 million was better than our guidance of $12.8 million, net earnings of $11.5 million or $0.37 per diluted share was better than our guidance of $11.1 million or $0.35 per share.

Comparing Q4 '07 results sequentially to Q3, revenue increased by 22% to $135.6 million from $111.5 million in Q3. This increase was driven primarily by an increase in sales of our new HSUPA AirCard products. Total USB sales were $47 million or 35% of our Q4 revenue, as compared to $45 million or 40% of our Q3 revenue.

During the quarter AT&T and Sprint each accounted for more than 10% of our revenue, and in aggregate these two customers represented approximately 45% of our revenue. In Q3 AT&T, Sprint, and Verizon were our greater than 10% customers, and collectively they represented 51% of our revenue.

Gross margin declined to 27.9% compared to 29.7% in Q3. The decline in gross margin is a result of significant revenue coming from lower ASP Legacy AirCard products, and as well the component supply issue also had a negative impact on GM in the quarter as we favored our larger [but lower] GM customers in the allocation of product.

Our operating expenses increased to $24.5 million from $21.4 million in Q3. This increase was driven by new product launch and development expenses, as well as an increase in sales expense. Despite the increase in OpEx we improved our operating leverage in Q4. OpEx as a percentage of revenue decreased to 18% from 19.2% in Q3.

Earnings from operations increased to $13.3 million from $11.6 million in Q3, resulting in an operating margin of 9.8% compared to 10.4% in Q3. Net earnings increased to $11.5 million or $0.37 per diluted share, that's up from $9 million or $0.33 per diluted share in the third quarter.

Looking at key balance sheet items and comparing them to September 30th, I spoke earlier about cash. Accounts receivable increased to $83 million from $69 million at the end of September. DSOs at the end of the year were 52 days, up from 45 days at the end of Q3, but this is well within our historical range of DSOs. And inventory decreased during the quarter to $25 million from $28 million. This reduction is due to an decrease in both [HSPA] and CDMA inventory, and we view this as a relatively low level of inventory and reflects our supply constrained environment.

For the fiscal year 2000 compared to fiscal year 2006, revenue increased 99% to $439.9 million, up from $221.3 million in 2006. Gross margin was 28% in 2007, representing an improvement from the Q4 '06 gross margin of 26%, which we had coming into the year.

Operating expenses increased to $84.6 million compared to $63.6 million in 2006. Despite this increase in OpEx, we improved our operating leverage during 2007. OpEx as a percentage of revenue decreased to 19.2% in 2007 from 28.7% in 2006.

Earnings from operations increased to $38.6 million, up from $5.6 million in 2006, and net earnings were $32.5 million or $1.16 per diluted share, compared to $9.8 million or $0.38 per diluted share.

Looking at our revenue by product line, comparing the fourth quarter sequentially to Q3, revenue from AirCards was up 31% to $95.4 million, that represents 71% of our revenues. OEM was flat at $27.5 million representing 20% of our revenues. Mobile and M2M was up 11% to $10.9 million, representing 8% of our revenue, and other was [1% or 1.8%] of our revenue. Within the OEM product line sales to PC OEMs were approximately $18 million in Q4, while sales to vertical OEM customers generated revenue of $9.5 million.

Looking at revenue by geography, in Q4 compared sequentially to Q3, revenue in the Americas increased by 9% to $87.9 million, representing 65% of our revenues. Europe was up 80% to $16.5 million and representing 12% of our revenues, and Asia-Pacific was up 42% to $31.2 million, representing 23% of our revenues. All three of these regions had record quarterly revenue in Q4.

The 9% sequential Q4 increase in the Americas was due primarily to sales of our new HSUPA AirCards, and compared to Q4 of the prior year our sales in the Americas increased by 136%. In Europe the 80% sequential increase was due to increased AirCard sales, and compared to Q4 the prior year our European sales were up 2%. And in Asia-Pacific region the 42% sequential increase in sales is primarily the result of increased AirCard and OEM sales, compared to Q4 of the prior year our Asia-Pac sales increased 109%.

On the guidance for the first quarter, we're providing financial guidance for the first quarter ending March 31, 2008. This guidance reflects our current business indicators and expectations. Our guidance for the first quarter reflects strong demand and good revenue visibility, however, this outlook is constrained by expected continuing supply shortages on key components.

Compared to the fourth quarter of 2007 we expect our Q1 '08 gross margin percentage to be stable. As a result of our anticipated new product launch activity in the first half of 2008, as well as increased sales and marketing expense, we expect our 2008 first quarter operating expenses to increase relative to Q4 '07.

Inherent in this guidance are risk factors that are described in detail in our regulatory filings. Our actual results could differ materially from the guidance presented. All figures are estimates based on Management's current beliefs and assumptions and are subject to change.

So on a GAAP basis, guidance for Q1 is as follows: revenue of $136 million, earnings from operations of $11.3 million, net earnings of $9.4 million, and diluted EPS of $0.30 a share. On a proforma basis excluding stock based compensation and purchase price acquisition amortization revenue remains at $136 million, proforma earnings from operations would be $13.8 million, proforma net earnings would be $11.1 million, and proforma EPS would be $0.35 a share.

Jason, with that, I'll pass it back to you.

Thanks, Dave.

Our results for the fourth quarter and full year 2007 illustrate the continued momentum in our business. In Q4 we once again achieved record quarterly revenue, volume, and earnings. Our business model leverage continued to improve, as well, as we lowered operating expenses as a percentage of sales to 18% and delivered solid earnings from operations.

During 2007 we nearly doubled our revenue to another record high, this after posting revenue growth of 107% in 2006. Our strong revenue growth and business execution helped us to grow earnings from operations nearly sevenfold in 2007 compared to 2006.

And while driving significantly improved operating results in 2007 we also launched many new products, opened new channels in markets, diversified our business with the acquisition of AirLink and bolstered our strategic transaction capacity with a new equity issue.

We believe that our market continues to experience a strong rate of growth as more and more users adopt the compelling benefits of mobile broadband connectivity. As we look forward to 2008 we are encouraged by the continued strong growth in our market segments, our proven ability to execute in a competitive environment, and the strategic opportunities that lay ahead.

Our expectations for 2008 are for continued revenue growth, improving profitability, and further business diversification.

And, with that, Luke, we will open the line up for questions.

(OPERATOR INSTRUCTIONS.)

Your first question comes from George Iwanyc of Oppenheimer. Please go ahead.

Congratulations on the strong results, guys.

Thanks, George.

Thanks, George.

Jason, when you said that the component supply situation is getting better by Q2 can you kind of give us a reference point for how much of a constrained situation you see right now and what you expect in the June time period?

Well, let me be careful not to tell you exactly how much revenue was constrained. First of all, that's always a tricky number to pick, and it's just not a number we're ready to disclose, but it's safe to say we were constrained in Q4, we expect to be constrained again in Q1, and the change for Q2, there's a couple of things. I think by then we'll be fully transitioned to the non-infringing chipsets, and from Qualcomm, and furthermore we should be in a much stronger supply position on those chipsets as we execute [one] and enter Q2. And our demand picture we believe will continue to be strong in Q2, so that should lift a little bit of our constraint off.

And, in addition to that, a couple of other components that have been plaguing us, we believe the component constraints will be lifted as we execute [one], as well. So those two factors combined with what we believe is continued strong demand give us a bit more optimism for Q2.

And on the infringing chipsets, have you already been able to start certifying products with the new chipsets?

Yes, we have. And the first kind of the most urgent situation for us was the chips, the WCDMA chips affected by the injunction, as you can imagine, and with respect to the new replacement and non-infringing chips, we were actually integrating those chips actively by the -- before the end of the year and had those fully integrated into our products and prepared for certification. We're in a situation now where we expect a very rapid certification cycle on those products, and we've already started now receiving shipments of the new non-infringing chips from Qualcomm. So, you know, while it's definitely affecting our ability to meet all the demand in Q1, the situation is rapidly improving.

And just following up on the visibility into the further part of the year, what type of seasonality do you think we can expect this year, or would you anticipate any seasonality?

You know, it's always a tough question. I think with our mobile and M2M business that, you know, we see seasonality more clearly there because we have a much, we're much closer to the end customers, and in that business I think we expect to see kind of traditional seasonality with a strong Q4 and a softer Q1. Underlying end user demand in our business, in the mobile computing business, you know, again, it tends to mirror what happens in the mobile phone environment where Q4 tends to be very strong, Q1 a little less so, and then and Q2, Q2 is generally quite strong, as well.

Okay. And, Dave, one final question for you. On the stock option expenses, can you tell us how that breaks out for R&D and sales and marketing?

Sure. So in the quarter the total number was $1.6 million, George, and cost of goods sold $200,000, sales and marketing, $300,000, R&D, $200,000, and admin, $900,000.

Thank you very much.

Your next question comes from Mike Abramsky of RBC Capital Markets. Please go ahead.

Thanks very much. Jason, just moving to your other comment about expecting a strong demand environment, could you just talk a little bit more about what you see as the drivers of that confidence level, both, you know, both from your point of view and also from the carrier point of view?

I think they're -- I think it's just a continuation of the same story, Mike. You know, more network coverage, better network speeds, more promotion on the part of operators, greater awareness on the part of users, and still we're in a low penetration environment. So I think all of those factors, for us, seem to point to a continuingly strong demand environment. So no new big enablers have entered the picture, it's just a continuation of what we've been seeing for the past several quarters.

And what about competitive headwinds affecting your momentum within that stronger demand environment, any developments or headwinds that you see intensifying there on either OEM or [cards]?

Yes, I'd say in the adapter side of our business, the card side of our business, it's kind of I would view it as business as usual for as far out as we can see anyway; right? And that's a -- it's always been an intensely competitive environment, and we anticipate that's going to continue, and so far our execution has enabled us to capture a growing share of a growing market.

And with respect to embedded, on the embedded side, clearly the entry of Gobi customers and Ericsson has intensified the competition in the PC OEM segment, and our view is they're going to be players in that segment, and it's likely to impact share, but we're still focused on the PC OEM segment, we're competing for profitable business, we picked up another design win during Q4.

And I'll also point out that we have a very diversified OEM business; right? So it's not all about PC OEMs for us. We've got a very nice franchise and profitable franchise with vertical OEMs, where our share continues to be very strong and where we see good growth prospects.

Certifying the products with the new chipsets, that's put you ahead of competitors on that?

To put us ahead of competitors? You know, I think we're all in the same boat on that, Mike; right? It really was a -- it was -- the injunction was a much more Draconian act than anybody expected, and it threw virtually everybody into a very rapid fire drill to get non-infringing products -- or I should say products with non-infringing chips, rapidly integrated and certified.

Now, you know, we might have been a little ahead of the game because we were already working on the integration of the non-infringing chips and we do have a lot of the exposure to the U.S. market, or the U.S. WCDMA market, so it may have led to some advantage but I would imagine there's a lot of guys like us going through a fire drill and rapid integration and rapid recertification.

Okay. And, lastly, on the anticipation of an improving component environment in Q2, as you mentioned, does that suggest a rise in gross margins, or how do we think about that for the back half of the year based on current assumptions and mix?

Yes, we're not -- well, we're not going to give guidance, gross margin guidance clearly for Q2, but we are feeling like Q4, Q1 we've got quite a bit of our mix on low ASP, legacy, AirCard products. And as we look past that, I think it's safe to say we have, we're a bit more optimistic as we bring on new products with a bit better gross margin profile, and our long-term target remains 30%, and I think we've got line of sight on how to get there.

Okay. Thanks very much, Jason.

Sure.

Your next question comes from John Bright of Avondale Partners. Please go ahead.

Thank you. Good evening, Jason and Dave. Jason, how did the shortage play-out for the components this past quarter compared to your expectations?

Well, obviously, it played out a little bit better than we had thought; right?

Yes.

So when we gave guidance we gave guidance at a -- of $125 million for Q4 and that, you know, at the time that's -- that incorporated our clear line of sight to the available supply. Now, late in the quarter we, candidly, got some breaks and the supply picture improved for us, so we were able to get some up side.

And you think you'll improve in the second quarter based upon the conversations you've had with the suppliers? In addition, you said, I think, you have a stronger position, is that that you're moving up the chain for components, is that why you will have a stronger position in the second quarter for components?

Well, a couple things happened, like I said, in the second quarter; right? First of all, a couple of our suppliers who have supply issues, they've got worldwide demand, for months now they've had worldwide demand that's been outstripping their capacity. They're catching up to that, so that's going to help. And, in addition to that, we'll be fully transitioned over to the non-infringing Qualcomm chips and have full supply momentum on those non-infringing chips. So those two factors are key to driving what we believe is a more favorable supply outlook in Q2.

Okay. Jason, visibility, you articulate in the press release, has improved, which is different from years past. Are carriers sharing their marketing plans with you at this juncture, and how far out would you characterize your visibility today?

Yes, I don't know that our visibility is any better today than it was in the last two quarters. I think, you know, we've had pretty good visibility to the next quarter's revenue. This -- and, you know, the dynamics differ quarter to quarter a little bit around the edges. Q4 bookings were very strong and that gives us confidence with respect to the demand outlook for Q1, and like I said that demand outlook is constrained by supply limitations.

So looking through to Q2, yes, you know, it's a little bit tougher to see what the demand picture is going to be, but we plan on launching a couple of new products. We've got customers excited about those new products, and we have no reason to believe that the momentum with our current customers is going to slow-down. So we've got no reason to believe that demand slows down, and the one dynamic that we do believe will change significantly is the supply dynamic.

Terrific. Dave, one final question, on other income, it looked to be a bit higher. Anything causing that this quarter?

The big thing, John, was we closed the equity issue right at the beginning of the quarter, so that money came in on October 2nd, I think it was. So that generated a lot more interest income in the quarter.

Gentlemen, thank you. Congratulations on a good quarter.

Thanks, John.

Thank you.

Your next question comes from Jeff Kvaal of Lehman Brothers. Please go ahead. Mr. Kvaal, your line is open.

Your next question comes from Samuel Wilson of JMB Securities. Please go ahead.

Good afternoon, gentlemen. Just a few small questions. First, and I'll just run through these and let you answer them all in order. Headcount? Second, just it's been sort of about I guess 100 days since Qualcomm announced Gobi, and just wanted to get your, sort of your latest sense as to how that will change the market dynamics? The general industry consensus has been that it will lower the barriers to entry, do you still think that's -- you know, do you think that's a fair assessment or not? And, lastly, just sort of an update on what you perceive the long-term operating model for the Company to be? Thank you.

Sure, Samuel. So on headcount we ended the year with a headcount of 408.

The next question was with respect to Gobi, and I think we've addressed that already, and I'm in agreement with the statement that was made. The existence of Gobi we believe does two things. It gives us another product to consider selling to our OEM customers, but we also believe it lowers the barriers to entry for other players in the space. And that leads to, that combined with the Ericsson presence I think leads to a more intensified competitive dynamic in the PC OEM space.

So, you know, we're contending with that. We've got an extraordinarily high share in that business now. There's new competitors in there, so my assessment of that is our extraordinarily high share is probably going to come down a bit, but we're going to continue to compete for profitable business in that space, while we also continue to diversify our OEM business and bring on new vertical OEM customers, as well.

With respect to the long-term operating model, it's still unchanged. We have a 30% gross margin in our view, 20% OpEx, and 10% operating margin is the long-term operating model.

Okay. Thank you very much, gentlemen, and congratulations on a great quarter.

Yes, thanks.

Thank you.

Your next question comes from Dev Bhangui of Haywood Securities. Please go ahead.

Hi, good afternoon, Jason and Dave, and congratulations on a great quarter and the good guidance, as well.

Thanks, Dev.

Thanks, Dev.

A question, Dave, I guess, just in terms of a clarification in terms of the Q1 guidance, and this is, I'm not able to understand a little bit of English here, I guess compared to my colleagues. You're saying that compared to Q4 your margin, the gross margin guidance, is going to remain unchanged with respect to Q4, or it's going to be better than Q4 because Q3 was (inaudible)?

Yes, we said stable, Dev, relative to the Q4 number.

So it should be similar to Q4, that's what you're saying?

Yes, I mean that's a fair interpretation, stable.

Okay. The other one was just in terms of seasonality, and I think this question was asked earlier and Jason answered that, given the kind of the -- if you eyeball the numbers in terms of seasonality, [Q1 to Q2 to Q4 in] '07, given the experience in the supply and so on, do you expect 2008 more or less to mirror that kind of seasonality, or is that going to change materially going forward?

Yes. You know, how it's going to play-out I think really remains to be seen, Dev. As we've said many times before, because we're in such a high growth environment it's tough to really see what the seasonality trends are. However, I do believe that over time you'll see our seasonality tend to mirror what you see with the mobile handset manufacturers and the carrier retail cycle. And that generally means a lot of emphasis on Q4, and usually means a flat to down Q1, and a bit more strength in Q2.

And whether or not 2008 is going to play-out that way remains to be seen because, you know, the past two years haven't played out that way for us. We've just had very strong, generally speaking, very strong sequential growth every quarter. However, like I said, looking forward, I think that we're going to tend to look a lot more like a mobile handset manufacturer/mobile phone retail oriented seasonality model.

Okay. Thanks. Dave, a quick question in terms of tax. Can you give us some more color in terms of how the tax situation (inaudible) and otherwise going to look like in 2008 vis--vis 2007?

Sure. We're at 25% rate in 2007, Dev. You know, we've ranged in that before for 2008 between 30% and 35%, and our view now is we'll be towards the low end of that range.

Okay. Thanks, Dave. And, Jason, quickly, in terms of I guess the M2M business, AirLink now from quarter to quarter has been a very strong contributor, a very strong GM, but in terms of the growth can you give us any of your thoughts? Because it looks like growth has to come from some of the nonorganic initiatives that the Company probably is about to take or is going to take?

Yes, well, first of all, I think that business, you know, that business before we acquired it was growing at approximately 25% a year, and there's -- we certainly believe that organically going forward we'll be able to grow that business by 25% a year or better.

And the way we're going to grow it organically is through opening more segments with more products. We're going to open up new geographies, as an example, we'll be launching those products in Europe. We'll be growing that business through share gains, we believe, given that we're a better capitalized entity as a combined Company, and we've got more resources to drive the business. And then, fourthly, I believe you're right, you know, there are M&A opportunities. It's a very fragmented business. We've got our eyes and ears open for good ideas to add to our mobile and M2M business.

Okay. And this new, I guess the newest product that you've launched in terms of USB, you -- I mean you are still selling the older version, both are HSUPA products; right? Or do you have an advantage with this new HSUPA USB card in terms of margins or in terms of better demand, in terms of (inaudible); what kind of advantages do you have (inaudible)?

Relative to our existing USB products --?

Yes.

The form factor is improved, it's a bit smaller, the industrial design is a bit better. It is an HSUPA product; right? So in terms of AirLink support there's no change. There's some other features, as well, including memory storage capability.

So the (inaudible) or you guys are going to phase those ones in favor of this (inaudible) product?

Well, you know, you have to stay-tuned on that; right? So we are continually working on new designs for all of our products, including USB. Apex is one of those, and I think you should expect us to begin giving you visibility on new USB designs, as well. And then there's going to be a natural transition; right? There's going to be a natural transition from the legacy products to the new products, and exactly when that's going to happen at each individual carrier is going to vary considerably based on the individual requirements of those carriers. But, yes, over time expect the transition to the new designs.

Okay. And the last question, here, and thanks for taking all my questions, you said that the embedded [module space, within that space the Company will experience growth, and given I guess all the (inaudible) on the Gobi, and the (inaudible) competition in the PC OEM space, it looks like that you are expecting a lot of growth coming from the vertical OEMs of the (inaudible) PC OEM space as far as the embedded module is concerned. And kind of (inaudible) any of that. Is that a correct statement or --?

I think that's a correct statement. You know, as we look at 2008 we expect our overall OEM business to grow in 2008, and I think it's safe to say our expectation is that most of that growth will come from our vertical OEM customers.

Okay. Thanks, Jason and Dave, and I'll [go back].

Thanks, Dev.

Thanks, Dev.

Your next question comes from [Amir Rozwatski] of Lehman Brothers. Please go ahead.

Afternoon, Jason and Dave.

Hi, Amir.

In terms of the [M10] business, any update on the Cisco relationship?

Not a specific update, it's going well, the products are in market. They're [ISR] products with our [wick] adapters for both [HSPA] and EVDO Rev A, so they're in channels and our expectations are that that business is going to grow.

So you folks are already booking revenues?

Oh, yes, yes.

Oh, fantastic. And then in terms of -- I know you have touched upon this in terms of potential strategic alternatives, any update in terms of either timing or potential targets, not specific (inaudible) but in sort of industries that we should be thinking about?

Well, you know, I think we want to be fairly careful with giving you a lot of information there. We have a, what I would characterize as an active funnel of opportunities. I would characterize our activities around M&A as much more organized than they have been in the past. There's a number of good ideas, some of them better than others, we're -- and we're going through the exercise of evaluating them all.

And with respect to which segments to look at, I mean look at our current business; right? And we've got a good, strong franchise in mobile computing, that's a natural area to grow, and we've got a growing franchise in mobile and M2M, that's another growth opportunity.

And then in terms of your specific sort of strategy when it comes to that, I mean should we expect, I mean obviously AirLink has been a strong accretive transaction for you folks, that's sort of the criteria from your perspective, Jason?

You know, it's certainly a preferred criteria, but it's not hard and fast.

Okay.

You know, there's potentially interesting technology acquisitions, as an example, that may not be immediately accretive. So we have to give them all consideration, but certainly we weight things like immediately accretive results very heavily as very attractive. They're kind of no brainers, actually; right?

Right.

If we could find a handful of AirLinks we'd --

Do that all day long.

-- yes.

And then, lastly, in terms of WiMAX updates, any update from that perspective? I mean it seems as though Sprint may be going forward with that in terms of your own strategy on the WiMAX side?

Well, yes, you know, we've -- kind of the same -- I'll give you the same response we've been giving. I mean clearly WiMAX for us is a lot about, not solely about, but it's a lot about Sprint; right? So we're watching the developments at Sprint with a great deal of interest, as you can imagine, and there's clearly been significant change there in the past couple of months.

Uh-huh.

And so we have an active WiMAX development program. We've been very open about that. So we're making progress there. It's safe to say we've been hesitant to put the pedal to the metal until we have certainty on the timing of the WiMAX market and specifically the timing for Sprint. So we're working with Sprint closely, we're watching that situation closely, and hopefully we'll call the timing right there, but we are taking initial steps, we've already invested in doing some WiMAX development.

Great. Well, that's it from my end. Thanks a lot.

Okay. Thanks, Amir.

Your next question comes from Gus Papageorgiou of Scotia Capital. Please go ahead.

Hi. Thanks. I think, Jason, I wasn't sure if it's Jason or Dave, but you said that the -- your HSUPA card was being offered by Bouyges and that it has passed technical approval for several other carriers in Europe. I'm wondering those carriers, are they existing customers or are they potentially new European carriers?

Well, that's a loaded question, Gus.

Pretty straightforward?

Yes. Well, you know, it -- I'm going to be careful on how I answer that, but we -- it's clearly a lot easier for any company to continue and build on an existing relationship than to establish a new one and penetrate a new account. So, you know, kind of the low hanging fruit for us are our existing customers. But with respect to specifically who those operators are and who have granted us technical approval on our new HSUPA products, we're just not ready to disclose that yet.

Okay. And does the (inaudible) technical approval means that they are going to offer the product or technical approval means that they've -- it's passed the technical requirements and they may or may not, I mean they could chose not to offer the product?

Yes, that would be very unusual to go through the effort of granting technical approval, because it's quite an effort on both sides, and not launch the product.

Okay.

So that is -- that's generally a good indicator of launch.

Okay. So one more question, Ericsson was making some noise [earlier] in 2007 that they were going to enter the module, embedded module segment, have you seen any serious efforts from them to get into the market? Are you expecting them to enter in 2008? What's your view on that?

Yes, yes, we do. And I think there's been lots of questions with respect to Gobi, and when I answer them I'm always quick to point out it's Gobi and Ericsson both contribute to the changing competitive dynamic in PC OEM land. So, yes, we do see Ericsson in the market, we've seen them do some aggressive things with respect to price, so we view them as a competitor.

I'm sorry, are they already in the market, you said?

You know what? I don't know exactly what their shipping status is. You know, we haven't seen any notification that they're actually making commercial shipments, but certainly we've seen their sales efforts in the field.

Okay. Thank you.

Sure.

Your next question comes from Kevin Dede of Morgan Joseph. Please go ahead.

Good afternoon. Kevin Dede. Nice job on the quarter, gents.

Thanks, Kevin.

Thanks.

I was wondering if you could give us an indication on the GSM side of the product mix shift from, say, Q3 to Q4, and what you expect going into Q1 with respect to the DPA versus UPA? Give us an indication of how fast your mix is swinging and how fast the carrier uptake of the new product is?

Kevin, it's Dave. We did see a change in the mix of technology. I'm not going to speak to any one particular product line, but overall GSM products contributed 61% of our revenues in the fourth quarter and that was up from 46% of our revenues in Q3, and the offset of that was that CDMA was at 38% in Q4 and 53% in Q3. I think that reflects some strong momentum that we had with our new UPA launches that happened late in Q3 and certainly drove the significant portion of the growth in Q4.

Okay. Well, how about relative to DPA? Can you talk about the mix within [PSM]?

Well, it's a transition; right? I mean we've got many customers and customers are at different parts of their network [roll-out], so we still have a very good DPA business, but over time expecting it to transition to the UPA product.

And would you mind commenting on the success that you're having, that Sierra is having with Gobi? My understanding is that it's not necessarily in every carrier's interest to use a combination technology because that would give their subscriber the opportunity to jump to another carrier.

Well, yes, I think it is safe to say, Kevin, that certain -- some operators view Gobi more favorably than others and for various reasons, as you pointed out. At the end of the day it does tend to be more of a decision on the part of the OEM, though. Obviously, the carriers are a key influencer in that decision, but it's really up to the OEM what platforms they choose to put inside their notebook PCs.

With respect to our experience with Gobi, you know, we continue to stay up to speed on the Gobi roadmap. We evaluate the Gobi fit in various sales situations. We've proposed Gobi to a couple of customers, but we're not prepared to disclose any specific design wins with Gobi, but clearly we consider it when we're out talking to our OEM, PC OEM customers.

Okay. So it's become an effective tool in your own arsenal?

It's a tool in our arsenal, yes.

All righty. Now, my understanding is that AirLink, your AirLink business was flat [versus] September; is that true or did I misunderstand the numbers?

No, you've got that right.

That's right, you've got that right. The revenue from the acquired AirLink products was flat; however, the group, the mobile and M2M group was up 11% sequentially. So the growth was really driven by the legacy Sierra Wireless MP product, which has been transitioned over to the AirLink Team.

Okay.

Right? So that whole mobile and M2M group, including the Sierra Wireless legacy MP product is under Andy Berman, the former CEO of AirLink, and he's running that Division for us.

Could you help me understand why you think the business at AirLink was stagnant? Is there some seasonality involved there, and can we expect it to increase in the March quarter?

You know, I think the way to think about it is the business, our business division, mobile and M2M business division being run by Andy Berman was up sequentially 11%. I wouldn't call the AirLink business "stagnant," right? Because we rapidly transitioned the MP product over to that business, so they're making -- the former AirLink Team is making decisions in customer situations whether to sell the MP or whether to sell a legacy AirLink product, like the PinPoint. So you have to look at the business in aggregate, and it was up 11% sequentially.

Now, with respect to what's going to happen in Q1, you know, our view is that business, like I said earlier, since we have much closer line of sight to the end customer than we do in our mobile computing business, I think it's pretty -- it's easier for us to spot seasonality trends, and I do think that's a business where you'll more clearly see seasonality with -- you know, you'll tend to have a very strong Q4 when governments and enterprises are spending their yearend money, and typically you'll see a flat to down Q1, and then a build-up over the year. So I would expect to see that pattern in our mobile and M2M business.

Would you say, Jason, that Andy is focusing more on MP because he views the features that that product has as being more attractive in the end market?

No, I think he's listening to his customers and selling them the product they want.

Okay. Very good. What was the PC OEM number? I missed that.

$18 million.

$15 million flat?

$18 million, $18 million.

$18 million. Okay. Thank you. Thank you very much, gentlemen, and congrats on a nice job.

Thanks. And, Luke, we're going to take one more question, one more caller.

Your last question comes from [Michael Skilanski] of Piper Jaffray. Please go ahead.

Hi. Thanks very much. I apologize, Mike Walkley had to jump into a meeting, but we both offer our congrats.

Thank you.

Most of our questions were asked, but, Jason, in terms of demand visibility can you give us a sense of your U.S. installed base of EVDO Rev O customers that might potentially upgrade to Rev A? And then, also, could you share with us the channel mix of business versus consumer sales?

Well, you know, with respect to EVDO Rev O customers who are prospects for upgrading to Rev A, that's tough for us to put a specific number on it. I guess if I did some research I could figure that out, but you know our Rev A products have been in market now for quite some time, and I think a lot of customers have already gone through that upgrade cycle. And, you know, it's my sense now, although it's tough for us to have clear visibility on that, it's my sense now that most of our Rev A sales are going to new customers, but again it's just -- that's a bit of a -- that's a bit of a gut feel based on how long our Rev A products have been in market.

And I'm sorry, Michael, what was your second question?

Yes, the channel mix of business versus consumer?

Through the carriers, how much of our carrier business is retail versus [B2B]; is that the question?

Correct.

Yes.

Just I mean, I guess the overall, yes, the [channel mix] business versus consumer (inaudible)?

You know, it's a -- I don't have that number specifically off the top of my head, Michael, but it's -- it is clear to us that there has been a, you know, over the past couple years a transition from what was a pure B2B sales environment to much more of a combination of B2B in retail.

Retail is getting a lot more attention these days. A lot of the promotional programs are being focused on retail, a lot more advertising is done, is being done inside the retail establishment. We're focusing a lot more of our sales efforts on retail, so the trend is certainly in that direction, but to give you a channel split right now, I'd just be guessing and giving you wrong numbers. But clearly the trend line is heading towards retail.

Got it.

In addition to still seeing strong B2B growth, but retail has clearly got significant momentum.

Now, with respect to our own channel mix, in Q4 we sold 57% of our revenue through carriers, 23% through resellers, 13% through PC OEMs, and 6% through other OEMs. I'm not sure if that helps you with your question but a little more information on our channel mix for you.

Very helpful. Thanks very much, and congrats, again.

Thank you.

Okay. Luke, I think with that we'll end the call.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.

Thank you.

Thank you.