司亞樂 (SWIR) 2008 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 results conference call. At this time, all participants are in a listen-only mode. Following their presentation, we will conduct a question-and-answer session. (Operator Instructions). I would like to remind everyone that this conference call is being recorded on Tuesday February 10, 2009 and 5:30 Eastern Standard Time. I will turn the call to Jason Cohenour, President and Chief Executive Officer. Please go ahead.

Thank you, John, and good afternoon, everyone. Thanks for joining today's call. Joining me on today's call here in the Richmond office is David McLennan, the company's CFO.

As an agenda, I'll have Dave read the forward-looking statements disclaimer, I'll provide a general business update, Dave will then cover the Q4 and full year 2008 financial performance as well as Q1 2009 financial guidance. I'll provide a summary and then we'll open the line up for questions. Dave?

Thanks, Jason, and good afternoon, everyone. 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 the applicable securities laws. These forward-looking statements are not promises or guaranteed of future performance, but are only predictions that relate to future events, conditions or circumstances or our future results, performance achievements and 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 and financial expectations as well as disclosure regarding possible events, conditions, circumstances of our results of operations that are based on assumptions about future economic conditions, courses of action 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 other negatives or other comparable words. Forward-looking statements include statements regarding the outlook for our future operations, plans and timing for the introduction of enhancement of our services and products, statements concerning strategies or developments, statements about future marketing conditions, supply conditions, end customer demand conditions, channel inventory and sell through, revenue, gross margin, operating expenses, profits and forecasts of future costs and expenditures as well as statements about the outcome of legal proceedings and other expectations, tension and plans that are not historical fact.

The risk factors and uncertainties that may affect our actual results, performance achievements or developments are many and include among others, our ability to develop, manufacturer, 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 risk factors and others are discussed in our annual information form which may be found CDAR and our other regulatory filings with the Securities and 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. 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. Back to you, Jason.

Thanks, Dave. In the context of current economic conditions, we view our fourth quarter financial results as solid and our progress in strengthening our strategic position excellent. For the full year 2008, we are quite pleased that were able to drive year-over-year revenue growth of nearly 30% as well as record earnings and cash flow in the face of stiff economic headwinds. During the fourth quarter of 2008, our revenue was $132.9 million, essentially flat compared to Q4 of 2007. Our earnings from operations were a solid $9 million, cash flow from operations was a record $32.3 million. During the quarter, we continued to experience solid traction with key operator customers while also launching important new products, developing new technology platforms with industry leaders and opening up new international channels. Overall, we believe that our market channel and product position continues to be strong.

During the quarter, we took a major step in executing on our strategy of expanding aggressively into the M2M market with our offer to purchase Wavecom. We are excited about completing the acquisition transaction in Q1 and looking forward with the integration effort. We believe this combination will place us in a unique market position, establish us as a clear global leader in wireless for mobile computing, and M2M. Not withstanding our solid progress in most of our business lines and a major strategic move, we're beginning to experience the impact of the softening macroeconomic climate. In response to this impact, we took actions to streamline our cost structure in January of 2009, eliminating 56 positions and reducing our annualized labor costs by approximately $5.5 million.

Moving to specific updates on product lines, I'll start with our PC adapter business. Q4 PC adapter revenue was $101.2 million, up 3% from Q3 and up 6% compared to Q4 of 2007. Sales of USB modems contributed 79% of our PC adapter revenue. During the quarter, we continued to experience particularly strong PC adapter revenue contribution from AT&T, Sprint and Telstra. For the full year 2008, PC adapter sales were $409 million, up 29% over 2007. During the quarter, we received technical approval for our new Compass 888 USB modem for HSPA from a number of operators in Europe and Asia and commenced initial commercial shipments of the product. SoftBank Mobile in Japan and 02 Ireland have since commercially launched the product in their respective market.

Our Compass 888 launch with SoftBank represents the first Sierra Wireless PC adapter commercially available in Japan. Our new USB 598 for EBDO, the world's smallest mobile broadband modem, received technical approval from Sprint during the quarter and we commenced commercial volume shipments. Sprint launched the USB 598 in January of 2009 Also during the quarter, we introduced our AirCard 501 and AirCard 502 express cards for HSPA. These new express cards are expected to commence shipping during the first quarter of 2009. Finally, we continued to demonstrate our first to market leadership capability in new air linked protocols announcing a collaborative effort with Telstra, Falcom and Eriksson to develop the world's first PC adapter devices supporting HSPA Plus. These new devices will support data speeds to up three times that of any HSPA products on the market today. Will be commercially available to one.

Moving to specific business development highlights in our embedded modules business, in Q4, revenue from sales of our embedded modules was $21.6 million, down 28% from Q3 and down 22% compared to Q4 of 2007. Revenue from PC OEM customers represented about 33% of our total embedded module sales during the quarter and was down 52% from Q3 as we continue to experience expected share erosion in this space. Sales of our embedded modules to vertical OEM customers was $14.4 million, essentially flat from Q3 and up 52% compared to Q4 of 2007. For the full year 2008, our OEM revenue was $120 million, up 32% from 2007. During Q4, we also introduced new embedded modules, supporting important international RF bands as well as enhanced software support.

Our new EM Connect suite of firmware features is designed to accelerate OEM development time while also reducing overall platform costs and dependence on discreet application processors. We also extended our application developer support releasing a new Linux compatible version of our popular STK. Looking forward, we expect our sales to PC OEMs to continue to erode in the near term and then to stabilize as we earn repeat design wins for the core set of PC OEM customers for certain platforms and geographic markets. We believe that we have established a strong leadership position in 3G embedded modules for vertical OEMs. We are particularly well positioned with global networking equipment manufacturers, industrial hand held makers and M2M solution providers. We believe that this market has strong growth opportunities and that our position will strengthen considerably with the addition of Wavecom.

Moving to mobile and M2M gateways. mobile and M2M gateway sales were $8.6 million in Q4, up approximately 18% compared to Q3 and down 21% from Q4 2007. While our mobile and M2M sales were down on a year-over-year basis, we were pleased to see sequential improvement in Q4. As you may recall, this segment of our business was first to be impacted by stiffening economic headwinds beginning in Q1 of 2008. Seeing strength return in Q4 is an encouraging sign and makes us cautiously optimistic about the outlook for this line of business. During the quarter, we continue to build on our fledgling position in EMEA securing new orders and making additional shipments into the region. In addition, our business development efforts in Asia and Latin America are yielding interesting expansion opportunities. We also continue to expand our product rep and enhance our software offerings. During the quarter, we commenced shipments of our new HSPA Raven XE gateway, secured operator approval for a number of new products and released a new version of Alios our embedded device management software. We continue to view the mobile and M2M gateway market as highly fragmented from a segment, channel and competition standpoint and believe it is fertile ground for profitable growth. We plan to continue to invest in growing this business with new products, segments and geographical expansion.

Moving to corporate development saw comment on our offer to purchase Wavecom. On December 2, 2008. we announced an all-cash offer to purchase the common shares in Oceon convertible bonds of Wavecom, the global leader in wireless M2M solutions based in France. The total value of the transaction is approximately 218 million euro, representing implied enterprise value for Wavecom of approximately 85.5 million euro. The transaction is being implemented by way of concurrent but separate tender offers in both France and the US. The french tender offer opened officially on January 9, 2009 and closes on February 12. Based on feedback from Wavecom institutional shareholders, we believe the tender offer will be successful and that we will have a transfer of control during Q1. We believe strongly in the strategic rationale for this transaction and that together the combination will create a global wireless leader in the mobile computing and M2M segments We believe this because together, we will have the most comprehensive product portfolio in the industry, including PC adapters, 2G, 3G and multi mode modules, M2M gateways, software and solutions.

Together we'll have significant presence and market share in all regions globally. Together we'll have strong relationships with many of the leading mobile network operators worldwide and be seen as a key partner in driving ARPU and subscriber growth. Together we'll have more customer relationships with market leading OEMs than any other player including leaders like Cisco, Benzo, Mitsu, Eriksson, Bugeau, Geneco and Honeywell. Together we will be the clear leader in advanced wireless data technology and solution innovation and have unparalleled R&D capabilities. Now back to Dave to cover Q4 financial results.

Thanks, Jason. Our results are reported in US dollars and are in accordance with US GAAP unless otherwise stated. For the fourth quarter of 2008, our revenue was $132.9 million. Gross margin was $36.4 million or 27.4% of revenue and our net earnings were $34.7 million or $1.12 per diluted share. Our results include $18.4 million of after tax, unrealized foreign exchange gains on euros held in connection with the Wavecom transaction, and a $6.5 million tax benefit resulting from the recognition of a tax asset which had previously been unrecognized. We are required to recognize this asset given the history of profitability in our US subsidiary.

Also included is $1.5 million of stock based compensation expense and $600,000 of purchase price of amortization associated with the acquisition of AirLink in May 2007. On a non-GAAP basis, excluding these items, net earnings were $11.2 million or $0.36 per diluted share. During the quarter, other income of $21.9 million includes the $18.4 million gain on the euros help for the Wavecom transaction, a further $2.4 million FX gain on our net operating financial assets and a $565,000 gain on the sale of bonds held for investment purposes. The balance of this $21.9 million which is $547,000 reflects net interest income. Our cash, short and long term investments totaled $273 million at the end of Q4 of which, $191.5 million is restricted cash associated with the Wavecom acquisition leaving an unrestricted balance of $81.5 million.

During the quarter, we generated record cash from operations of $32.3 million. Comparing our non-GAAP results which exclude the $18.4 million , FX gain on the euros for the Wavecom transaction, a $6.5 million tax benefit, stock compensation expense of 1.5 and purchase price amortization of $600,000 to our non-GAAP guidance which we provided for the fourth quarter 2008, revenue of 132.9 was 5% lower than our guidance of 140, non-GAAP earnings from operations of $11.1 million was lower than non-GAAP guidance of $12.2 million and non-GAAP net earnings, $11.2 million or $0.36 per share was greater than our non-GAAP guidance of $8.9 million or $0.28 per share. Comparing Q4 sequentially to Q3, revenue decreased by 2% to $132.9 million from $136.8 million in Q3. We view our fourth quarter revenue results as solid in the context of current economic conditions. PC adapter sales increased by 3% to $101.2 million from $98 million in Q3. Within this category in Q4, USB sales were $79.7 million and PC card sales were $21.5 million.

Q4 total OEM revenue was $26 million compared to $29.8 million in Q3. Within the OEM category, Q4 sales to PC OEMs were $7.2 million compared to $15 million in Q3 reflecting an expected decline in revenue from PC OEM customers. In Q4, sales to vertical OEM customers were flat at $14.4 million compared to $14.8 million in Q3. Our M2M revenue Increased $1.3 million sequentially in the quarter to $8.5 million. During the quarter, AT&T and Sprint each accounted for more than 10% of our revenue and in aggregate, these two customers represented approximately 57% of our revenue. In Q3 '08 AT&T and Sprint effectively represented 53% of revenue. Q4 gross margin of 27.4% was consistent with 27.6% in Q3. Our operating expenses decreased to $27.4 million in Q4 from $27.9 million in Q3. Earnings from operations decreased to $9 million compared to $9.8 million in Q3 '08, resulting in an operating margin 6.7% compared to 7.2% in Q3. Other income comprised of net interest income and FX gains increased to $21.9 million compared to $522,000 in Q3.

As indicated earlier, included in other income for Q4 is the $18.4 million FX gain on euros held for the Wavecom transaction. We also had an FX gain on our net operating financial results of $2.4 million in the quarter compared to an FX loss on these same balances of $800,000 in Q3 and a $565.000 gain in Q4 on the sale of bonds held for investment purposes. Non-GAAP net earnings increased $11.2 million or $0.36 per share in Q4 from $8.9 million or $0.28 per share in Q3. The weighted average diluted shares outstanding for Q4 decreased to $31 million as our options outstanding did not have any dilutive impact and we had a full quarter of benefit of shares repurchased in the third quarter

Looking at key balance sheet items, I spoke about cash earlier. Accounts receivable decreased to $67.1 million from $88.7 million at the end of September reflecting increased collections during the quarter Days sales outstanding December 31 were 43 days versus 54 days at September 30. Inventory remains stable at $33 million at the end of the year compared to $33.3 million at the end of September. On a full year basis, revenue increased 29% to a record $567.3 million, up from $439.9 million in 2007. Gross margin was 27.6% in 2008, down slightly from 28% in 2007. Operating expenses increased to $112.1 million compared to $84.6 million in 2007.

Despite the increase in OpEx, we were able to maintain our operating leverage during 2008. OpEx as a percentage of revenue was 19.8% in 2008, compared to 19.2% in 2007. Earnings from operations increased to $44.6 million, up from $38.6 million in 2007, and non-GAAP net earnings were $44.9 million or $1.43 per share in 2008 compared to $38.3 million or $1.37 per share in 2007. Looking at revenue by product line, Q4 compared to Q3, revenue from adapter was up 3% to $101.2 million, representing 77% of our revenue. OEM was down 28%, $21.6 million, representing 16% of our revenue, and this decline reflects expected share loss in the PC OEM segment of this market. Mobile and M2M revenue was up 18% to $8.6 million, representing 6% of our sales and other revenue was flat at approximately 1%.

Looking at revenue by geography, Q4 compared to Q3, Q4 revenue in the Americas increased by 2% to $99.2 million, representing 75% of our sales. Compared to Q4 of the prior year, sales in the Americas increased 13%. Revenue in Europe declined by 13% versus Q3 to $10.5 million, representing 8% of our sales. This decline was due to primarily to decreased sales of embedded module to PC OEM customers and lower PC card sales. Compared to Q4 of the prior year, our European sales were down 37%, and in Asia Pacific, sales were down versus Q3 to $23.2 million representing 17% of sales. The decline here is primarily due to lower sales of embedded modules to PC OEM customers as expected. Compared to Q4 of the prior year, our (inaudible) sales were down 26%.

Onto first quarter guidance. We're providing financial guidance for the first quarter ending March 31. This guidance reflects our current business indicators and expectations. This guidance is being provided on a non-GAAP basis, which excludes any impact from the Wavecom results, associated transaction costs and integration costs, restructuring costs, stock based compensation expense as well as purchase price on amortization. Our guidance for the first quarter reflects the uncertain macroeconomic environment which causes us to be cautious regarding revenue trends in the near term. Inherent in this guidance, our actual 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 our current beliefs and assumptions and are subject to change. So we're guiding $93 million of revenue for Q1, a $500,000 dollar loss from operations, net earnings of zero and diluted per share of zero as well -- EPS per share of zero as well. Key drivers of the reduction revenue in the first quarter relative to Q4 include global economic conditions negatively affecting demand from key channels, specifically, key channels are exercising tighter inventory management. ASP declines are not being offset by growth in volume. Some share loss, specifically at AT&T with the launch of a competitor's USB modem.

We believe we continue to have a strong leadership position at AT&T, but as expected, we are no longer the only USB supplier to AT&T. In the PC OEM market, we expect to continue to lose share in Q1. And thirdly, we're experiencing product transition in two of our large carrier customers. With that, I'll turn it to Jason to sum

Thanks, Dave. Given current economic conditions, we view our fourth quarter financial results as solid and our progress in strengthening our strategic positions excellent. For the full year 2009, we are very pleased that we were able to drive record revenue earnings and cash flow in the face of stiff economic headwinds. Fourth quarter of 2008 was challenging and eventful.

We commenced shipments of important new products to key existing customers such as Sprint and to new customers in new markets such as SoftBank Mobile in Japan. We collaborated with wireless industry leaders on the development of world's first HSPA Plus devices. We enhanced our leadership position for 3G solutions for vertical OEMs with the addition of new module products and enhancements to our software tools. We saw encouraging signs of strength return to our mobile and M2Mbusiness while also launching new products, enhancing our embedded software offering building momentum in international markets. We took a major step as at establishing Sierra Wireless as the global leader in wireless for mobile computing and M2M with our offer to purchase Wavecom.

Overall, we believe that our market channel and product position continues to be strong. We remain confident that as the business cycle strengthens, we will be well positioned with a broad and diversified product line, long list of blue chip customers and partners, strong global presence and an excellent team. As we look forward, we are excited about the opportunities that lay ahead and remain focused on business execution in a challenging environment and a successful integration with Wavecom. With that operator, we'll open the line for questions.

Thank you. Ladies and gentlemen we will now conduct a question-and-answer session. (Operator Instructions). One moment please for your first question. Your first question comes from Mike Abramsky from RBC Capital Markets. Please go ahead.

Thanks very much. Just regarding your revenue in the quarter missing your own guidance by $7 million, can you just give us a sense of what OEM revenue was in the guidance that might not have come in and what -- whether it was just a decline in either orders or share shifts that led to your coming in below guidance by such a wide margin?

It was 5%. I don't know if you consider that wide.

Relative to historicalness.

Yes, so the miss was disappointing clearly, and without getting into specifics on OEM versus things that happened in the operator channels, I will tell you that the fourth quarter was not linear. We started out very strong in October, and November and December were noticeably weaker. That surprised us, and I would say the weakness in November and December was probably fairly broad based. So it spread across all of our product lines.

So how do you feel about, I guess your outlook for PC cards and OEM modules in your current guidance, given that decline in visibility?

Well, we're guiding down 30%, so I think we've taken significant risk out of the guidance clearly, so I mean, it's a significant drop, I think that much is obvious. So how do we feel about it? Well, we feel like it's, as we normally do, a risk balance number. There is some risk to the number based on some new product launches and some demand expectations, and some there is some upside to the number as well for those same reasons.

So we think it's a good risk balance number Mike, I don't know how else to describe it. I wish we had more visibility than we do have. I mean, clearly the overall back drop is one of of macro uncertainty. And I think we took that into consideration when we balanced this guidance number. But I think it's the best number we can put out. So how do we feel about it? We feel like it's a balanced number.

Okay. You talked about that you expect further deterioration on the PC OEM side in the near term and then some stabilization. Just -- can you give us what your assumptions are in terms of that, just I mean, not -- perhaps I don't think it's necessary to be as much specific on timing as much as are you assuming that -- or what goes into your assumption that you will regain design wins in that space or how stiff is the competition from other, perhaps, vendors on pricing to continue to perhaps delay that recovery?

Well, I, I think that -- with respect to what we can see for the next couple of quarters, we've already got the design wins won. So for us to hit that stable space, and I think we probably have another quarter of erosion here in Q1 and then hopefully, we achieve stabilization, and that stabilization is forecast is based on a number of design wins that we already have. So there's not risk there. If there is risk, it's risk around integration, go to market activities and then ultimately, of course, sales by our OEM customers. And we're getting repeat design wins with some of our stalwart but not high volume customers and our higher volume customers in that space were players like HP and Lenovo. We're not expecting meaningful business out of those channels, although we still are designed into some -- a few platforms at HP.

It's more players like Fujitsu Siemens, Fujitsu Japan, AC, Panasonic and ASUS and a number of other smaller, perhaps niche players that we have got design wins with. And some of those design wins are very -- on targeted platforms and for targeted geographies. One example is Japan. We're doing extraordinary well with laptop OEMs who want to launch on the DOCOMO network, and Docomo has encouraged a lot of laptop OEMs to embed our modules for that market, and we're seeing a similar thing happen in Australia. But again, this isn't the volume business we were experiencing a few quarters ago, but it is good, profitable, steady business, we think it's fairly solid confidence.

Okay, lastly, on your cash and cash flow, after, I guess based on the rate of cash that Wavecom could burn this year, do you see the restructuring as sufficient to maintain the kind of cash flow and working capital that you're going to need to achieve the recovery and progress in your current markets and new markets that you want to achieve or if conditions continue to deteriorate in a similar way that they deteriorated this quarter, will you have to take more action in that regard?

I think before we get too far ahead of ourselves, we've made a cost reduction move as you alluded to and Wavecom is in the middle of making their own cost reduction moves. Are they sufficient? Well, of course we believe they're sufficient at this point in time, and our intent is to focus hard on integrating the two companies now, focus hard on capturing the revenue synergies, the product cost synergies and focus hard on making sure we have got leverage across our different functional operations and specifically R&D and sales in particular. So integration hasn't started in earnest yet.

We're just getting that machine going, and I think we've got the right cost structure now, but nobody in this environment has a crystal ball. If the environment continues to deteriorate, then we'll have a new set of variables with which we need to make potentially a new set of decisions, but for now, we're comfortable with the cost structure, comfortable with Wavecom's restructuring plans and we're confident when we put the two companies together we'll be in a strong channel product and customer position. Thanks very much. Sure.

Your next question comes from George Iwanyc from Oppenheimer. Please go ahead.

Thank you for taking my questions, Jason and Dave. Following up on your monthly trend comments with demand falling off in November and December, how have they trended so far in January and early February? Have you found stability at this point? January, yes I mean, January was fine and again, I don't want to get too far ahead of ourselves here, put January would indicate some linearity, but we have yet to see how Feb and March are going to play out. I think we've got, like I said -- you were alluding to guidance and I feel like 93 is a good risk balance number. I think given January results, we're off to a solid start against that number. And following up on the product transition impact to the first quarter, can you give us an update on where you feel you are and how you expect, , the transitions to look over the next

Yes, I think, so Dave alluded to two customers that that we're experiencing that with, and kind of two different stories there. One customer we had perhaps an unusually strong Q4 because there was overlap between a product that was being retired and shipments into the channel of the new replacement product which has since been launched. So I think we'll see some normalized demand now on the new product through that channel. And then a second channel going the other way, we are seeing a bit of a reorder slow down in anticipation of a new product launch that will be happening later this quarter. So I think that by the end of Q1, well certainly we'll see normalized demand on the new product in one of the big channels, and probably in the other channel, we'll see more normalized demand in Q2.

Okay, and then following up on products, when you look at your road map this year, what type of new product development -- can you give us some color on at this point?

Well, HSPA Plus is quite prominent on the road map. We've got a big development effort there underway and we're on the bleeding edge there of a new technology. So, I would -- HSPA Plus is definitely going to be a theme for us over the next two to three quarters as we launch the first products in Q1 and launch follow up products both in PC adapters, embedded modules and in M2M gateways over the course of the year. And then, with respect to our EBDO product lines, more product variance, perhaps some form factor variance, you'll have to stay tuned to that. And as we messaged earlier, YMAX is starting to be more prominently featured on our road maps and in our R&D efforts.

Okay, and one final question. Europe and Asia shows some of the effects of the PC OEM drop. Can you give us an update on how the USB product and the express card products are doing in those regions?

Well in Asia, pretty good. One of our customers in Asia is one of those customers we're going through a product transition on. So that's a good news, bad news thing. Probably bad news short term, good news in the medium term, and that's impacting that business. But we're certainly bullish longer term on Asia once we get past the PC OEM noise. We've got some really good other OEM design win activity, interesting and exciting things going on in Japan with USB devices and of course Australia. Europe continues to be a hotly competitive space.

We're optimistic that some of our new HSPA products and perhaps some of our HSPA Plus products will get us better positioned in some of the bigger volume channels. We continue to enjoy steady business out of Europe, but clearly not the growth we would like to see, and what's missing for us in Europe is a play in one or two archer volume channels, specifically retail channels with some of our core operator partners. So I'm optimistic about that. I think we have got a couple interesting opportunities on the go. We still have business develop execution ahead of us there. But I'm optimistic that we can turn the growth on in Europe at some point in 2009.

Thank you.

Your next question comes from Ilya Grozovsky from Morgan Joseph. Please go ahead.

Hi guys. Thanks for taking my question. So I wondered if you could just take me through the timeline on the Wavecom acquisition. So the tender offer closes in two days. Assuming everything depose smoothly there, when do you see the Wavecom results being incorporated into your numbers? Is that imminent? You get half the quarter of Q1 for Wavecom or what goes on there? And then my other question is if you can just take me through where you see your Q1 cash position, ending. Are you generating cash for this quarter and where you see the number at the end of the quarter? Thank you.

So first question is the Wavecom timing and we'll be -- we'll lack some precision on this, but as you alluded, the tender offer closes on February 12. We should have an official tally,so there's going to be some -- we're not going to have perfect visibility on February 12 of the tender results. So there'll be a week plus, perhaps a two week lag before we get an official tally from the AMF in France. That should happen late February and assuming those tender results put us over the 50% plus one voting right level, which we believe it probably will, that seems to be the trajectory we're on, then we could have a change of control as early as early March, but I wouldn't anticipate it before the end of February. So early to late March is our current expectation. So it is, I would say probable at this point in time.

We had a stub period in Q1 where we we would incorporate some of the Wavecom results. With respect to cash flow, we didn't provide cash flow guidance, although we have experienced in our business, significantly strong cash flow performance over the entire year. I think we generated cash flow from operations of about $86 million during 2008. We've got a witnesses slow down here in Q1 but our expectation is we probably continue to be comfortable with our cash levels through Q1 and through the closing of the Wavecom transaction. Clearly. we're watching cash pretty closely. It's -- we're not blind to the fact that Wavecom did burn some cash here in Q1 a little bit in the prior quarter. Notwithstanding that, we still firmly believe that we've got -- given our cash over performance, we've got sufficient cash for the combined company and sufficient cash to drive growth in the company.

So will you generate cash in Q1?

We haven't provided cash flow guidance for Q1.

Thank you.

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

Good afternoon. Just a few small questions. Most of mine have been answered. Can you give us what the non-GAAP tax amount was for the fourth quarter and what your expectations are for tax rate in 2009, either GAAP, non-GAAP, doesn't matter, now that you have got the change in deferred tax asset?

So going forward in Q1, I wouldn't expect there to be any income tax as a result of the break even position that we're in. Beyond Q1, depending on profitability levels in our various legal entities which drive tax, I would expect that we be somewhere between 25% and 28% income tax rate. If you look at -- if you look through the -- all of the income tax moving pieces and in Q4 and look at taxes on an annual basis for all of 2008, our effective income tax rate was 28%. That would specifically exclude the impact of the deferred tax asset recognition of $6.5 million and the impact of the $4 million gain on FX.

Okay. Second, can you just give us an update on competition overall? Eriksson's been in the market now for, gosh, I guess a year. Seem very aggressive in pricing. Hs that trend continued? Do you think it will continue?

That's -- you're speaking about the PC OEM space, and yes, that trend has continued. Eriksson continues to play a fairly prominent role with PC OEMs and is exercising aggressive pricing policies, best way to put it. And Qualcomm's Gobi solution as well is also capturing significant share in the PC OEM space. And pricing is definitely an issue in the space. As we look forward in PC OEM land, as I messaged earlier, we're not backing away from the space, although we have got a smaller business there than we enjoyed a few quarters ago. But part of me wonders whether or not Eriksson is going to be in this long term and furthermore, Qualcomm has made some revisions to their Gobi business model which is making it a bit more attractive for us, and we're taking a hard look at Gobi and are actually even proposing that solution now to a couple of potential PC OEM customers.

Thank you very much, gentlemen.

Sure.

Your next question comes from Amir Rozwadowski from Barclays Capital. Please go ahead.

Thank you very much, Jason and David, for taking my question.

No problem.

Jason, if we look at sort of, Wavecom's recent results, I just wanted to get a sense as to -- it seems like strategic rationale for the business, certainly, acquiring the business is in line, but I wanted to get a census as to how you viewed some of those results and whether or not they were in line with the plans that you folks had seen in terms of your outlook for potential accretion on a cash basis in 2010.

Yes I think we're being very careful not to get too fixated on Wavecom's Q4 or Q1, or even 2009 results at this point in time. We are very focused on the strategic rationale that you alluded to Amir, and we think the debt between the two companies is good. Like the M2M space, we think it's growing. We think it's got great defensible characteristics. Wavecom brings a strong European presence for us. I think we've got great opportunities for revenue synergies. With respect to accretion in 2010, I'm absolutely confident that by the end of 2009, we'll have the two companies materially fully integrated, the right structure, the right cost structure to drive strong accretion in 2010.

Okay, that's helpful Jason. And then if we talk about your product road map that you highlighted, some of the anticipated products that you expect to roll out for the course of this year, how should we think about -- obviously it seem as though focusing on higher speeds but as I seem to recall, also focusing on reduced costs was also a priority for you folks. How should we think about that within the context of your cost structure?

Well, you should expect us to continue to do that. Clearly, we've taken the cost structure down a bit here, the operating cost structure down a bit here. So that does mean we have eliminated some programs off the road map, but clearly not the key programs, product programs that affect our largest customers, nor the key cost reduction programs that we think are important to sustain our position in key channels.

So you should think about us continuing to do more of the same. So the Compass 888 has a good example of what is a new product that is primarily a cost reduction effort. It is our second generation HSUPA product, and the key new feature of the product is reduced costs. Similarly, the USB 598 for EBDO. While it's got some very interesting industrial design features and capabilities about it,, probably the key new feature of that product is reduced cost. So we'll continue on both tracks, developing products for new AirLink protocols as well as cost reduction efforts.

Okay, so given that, the increase of some of the new portfolio over the course of the year, one would imagine that if we're looking at a break even point for the business, excluding Wavecom of course, that sort of lowers sort of the break even point in terms of the business in terms from an operating standpoint.

Yes, so we've got a cost structure, free reductions between $27 million and eight -- $27 million and $20 million -- and $28 million a quarter, and we're bringing that down by a couple million, right? So that quickly -- and we're expecting to have stable growth margin performance as well. So that gets you pretty quickly to a break even point and from there, I think we think a good platform to drive growth. Then of course, we've got to effectively integrate the Wavecom acquisition.

Well, thanks a lot for the additional color, Jason.

You bet.

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

Hi Jason and Dave.

Hi Dev, how are you?

Good, how are you?

Good.

Quick question for Dave. Dave, in terms of the discipline so far that Sierra has observed in terms of OpEx revenue is as well as R&D to revenue ratios, can we expect the same kind of ratios, more or less going forward including Wavecom?

I think we have taken an initial step, Dev, to recalibrate our cost structure relative to revenue. So I think our stand alone metrics will be a little bit different from what we saw in 2008. I think our longer term business model, though, still is very much intact with OpEx as a percentage of revenue targeted around 20% for our mobile computing. And that will change, evolve over time as we blend in the Wavecom business which has a different gross margin profile and also a different OpEx profile.

Yes, I was not, obviously, referring to the Q1 or Q2, I was referring to that everything is well integrated by the end of calendar '09 when we are just looking at 2010 onwards. That's what - I'ms saying onward that I was referring to. Okay?

I think the the targets that we've expressed for the last little while still hold in a long term sense of having a target operating margin of approximately 10%.

Yes, you are talking about EBIT margins of 10%..

That's right.

Okay, and also my tax rate question going forward, are there not any cash plus carry forwards from Wavecom acquisition that would be beneficial to you?

Yes, the tax losses that Wavecom have will benefit any income generated in France. It's not something that we can use outside of that jurisdiction though. So that will certainly help reduce the effective rate and cash burn in Wavecom, but that's not something we can use to offset income from other jurisdictions.

Okay, and based on the product transitions that you alluded to earlier, with respect to two of your lightest customers, and also the fact that I believe, I'm not sure about what sort of arrangement, in what difference varies (inaudible) maybe the EMS (inaudible), but Wavecom definitely has some kind of an arrangement, if I'm not mistaken, by which -- while the EMS actually spends money on (inaudible), Wavecom bears the responsibility in case that (inaudible) doesn't get used. Based on the slow down in their business as well as all our macroeconomic weakness and so on that beside, do you believe there's going to be any (inaudible) that the combined company might have going forward based on your best guess right now?

I can speak to our business where we too have a similar situation with our contract manufacturer where we have commitments to the contract manufacturer, and if those products don't get built and sold, we bring some of that -- we buy some of that inventory. We constantly look at that Dev, and don't see a looming problem with that, and that's something that we very actively manage. The Wavecom business is different though from an inventory perspective, and I think they generally have less inventory risk. It's more of a build to order type of business. There are some longer time frames associated between order and delivery. And so you can see from their financial statements, their inventory line for instance, they can manage a business with a lot thinner inventory levels, but I think there's less risk there relative to our mobile computing business. As I said, I think we scrub our mobile computing business inventory situation very regularly and don't see any looming issues.

Okay, and one last question Jason, if you don't mind. In terms of the new product launches and in light of this audition with two of your lightest customers, can you give us some foresight in terms of new product launches that will fill up the void while these two carriers are transitioning going forward in next two or three quarters?

Well I -- those transitions are driven by brand new products, right? So it is the new products that are driving this transition. And so will there be additional new products to bridge this gap? No. We need to rely on sales of our existing products into those channels and making as elegant as possible a transition to the new product. So there's not going to be yet a third new product on top of the transition period.

Okay. Thanks. Thanks Jason and thanks David for taking my questions. All the best.

Okay, thanks.

Your next question comes from the [Mikael Fadani] from Raymond James. Please go ahead.

Hi, good evening, thanks for taking my question. Just two quick questions here. Just going back to the USB cards, you mentioned you lost some share at AT&T. And just given some of the comments from AT&T regarding the uptake of data cards being slower in Q4 compared to Q3, I was just wondering how that sort of paired off with the introduction of a new USB from a competitor at AT&T in terms of the effects on those two factors.

You know what, the effect on our business was probably a combination, right? We went -- during Q4, we went from essentially 100% share in USB to something less. So that clearly impacted us. And to the extent that AT&T experienced any slowdown in sell through of USB modems, well then that also would impact us. So that we saw that beginning in Q4 and clearly, that is what's driving part of our guidance picture for Q1.

Okay. And just a quick housekeeping question as well. I'm not sure if you mentioned that you bought back some shares in Q4. So if you could perhaps just repeat that, please.

No we did not. We -- given the Wavecom transaction, we did not buy any shares back in Q4. We did in Q3 though, we purchased approximately 457,000 shares .

Okay, great thanks.

Operator, we'll take one more question.

Certainly. Your next question comes from Barry Richards from Paradigm Capital. Please go ahead.

Yes, good evening. Jason, I have a question about the carrier distribution channel. Have you seen a difference in the reduction in inventories that's less or greater than the slowdown or reduction in sell through?

Gosh, trying to size those two. I would say the reduction in inventory outpaces any reduction in slow -- or any reduction in sell through. I think as we look at sell through on a volume basis, it's relatively stable, I'll say. It's not -- don't see the same kind of growth in sell through that we saw a few quarters ago, but volume sell through isn't dropping off a cliff. So clearly, tighter inventory management, is having a big impact on on sell in to the channel.

Got it. And --

With respect to impact on our revenue, our sell in revenue, the other comment I'll make is, if sell through volume is stable, that means your sell in revenue is going to go down of course, because ASPs come down, right?

Sure.

So lower ASP times the same volume going in equals lower revenues. So demand doesn't have to drop off a cliff to have an impact our revenue line.

Got it, and maybe a follow-on question. We had some pretty heavy promotions and some aggressive marketing by the carriers in 2008. Do you expect a repeat of that given the softer economy in 2009?

I sure hope so. We saw some pretty aggressive television advertising out of couple of our key customers in Q3, not as much in Q4. With our recent launch at Sprint, we've seen some really good promotional effort around that, mainly in print media. So we're certainly hoping that the promotional activities, particularly in big media continues. I will say the in store promotion activity and the subsidy promotion activity is as strong as ever, but the awareness promotion activity, we'd like to see that go back to Q3 levels.

Thanks. And maybe a question for Dave. Sorry if I missed this, but any comments on gross margins in the quarter? Q1?

We didn't -- we haven't provided any gross margin guidance for Q1, put we have been experiencing fairly stable gross margin.

Thanks and good luck.

Thanks. Okay, operator, I think we'll wrap up the call now.

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

Thank you, very much, everybody.