司亞樂 (SWIR) 2010 Q4 法說會逐字稿

Thank you for participating in the Sierra Wireless fourth quarter results conference call. I would like to introduce your speakers, Jason Cohenour and Dave McLennan. Thank you. Mr. Cohenour, please go ahead.

Thank you, Tracy, and good afternoon everyone. Thank you for joining today's conference call and webcast. With me today on the call is Dave McLennan, the Company's CFO. As a reminder, today's presentation is being webcast and will be available on our website following the call. Today's agenda is as follows. I'll first provide a general business update and then turn the call over to Dave, who will cover fourth quarter and full-year 2010 financial performance, as well as guidance for the first quarter of 2011.

I'll start with a brief summary of our Safe Harbor statement, which is found on page two of the webcast and is being displayed now. Certain statements and information in this presentation are not based on historical facts, and constitute forward-looking statements, within the meaning of applicable securities laws. Our forward-looking statements represent our current views and may change significantly. Please read our Safe Harbor statement on page two of the webcast deck in its entirety, and I also draw your attention to the longer discussion of risk factors in our annual information form and Management's Discussion and Analysis, which can be found on SEDAR and on EDGAR. This presentation and webcast should also be viewed in conjunction with our press release, and with the supplementary information on our website, which provides a complete reconciliation of our GAAP and non-GAAP results.

Our fourth quarter results, while below our guidance provided on November 3, were solid. Revenue in the fourth quarter of 2010 was $167.2 million, up 16% over the same period last year. And non-GAAP net earnings grew to $4.9 million, or $0.16 a share, up 32% compared to the fourth quarter of 2009. Both our machine-to-machine and Mobile Computing lines of business grew year-over-year and delivered solid contributions to overall profitability in the quarter. We also continued to execute successfully on our strategic objectives.

In M2M, we are the global leader and are building on our number-one market share position. New product, channel, and value chain investments are driving design win success and growth. In Mobile Computing, we are well positioned for the 4G growth cycle. We built on our strong relationships with key operator partners. We have added new channels and are investing in interface leadership to be first to market with new technologies. I'm also pleased to report that the Company delivered positive cash flow in the quarter, adding $6.9 million to the balance sheet.

Looking at full year results, 2010 was a great year for Sierra Wireless, and I'm very pleased with what we accomplished as a Company. We delivered strong growth and improved profitability. We strengthened our strategic position, implemented a new customer-centric organizational structure, reduced costs, and deployed a new supply chain strategy and systems to support our growing business.

In 2010, we achieved revenue of $650 million, a record for the Company, representing year-over-year growth of 24% from 2009. Our revenue growth combined with strong operating controls led to non-GAAP net earnings growth of 52% to $0.64 a share in 2010 from $0.42 a share in 2009. In addition to growth, our diversification strategy is working. Revenue from our M2M business grew 54% to $332 million in 2010. From $217 million in 2009. M2M revenue drove overall growth for the Company and represented 51% of consolidated 2010 sales. As a result of focusing on our key customers and driving superior execution, our Mobile Computing business continued to contribute strongly in 2010. We maintained share in the face of strong competition and drove revenue up $318 million, up slightly from 2009 on a year-over-year basis.

Moving to strategy execution, I'm ready proud of what we accomplished in 2010 to position our company for long term, sustainable profitable growth. As you know, we are pursuing two significant growth markets in the wireless industry. Machine-to-machine and Mobile Computing. At M2M, we are focused on global leadership. Our strategy is to be the embedded solution of choice for connected device OEMs, and to expand our position in the M2M value chain by building complete solutions and services for OEMs and operators.

In 2010, we captured the M2M global market share lead, and continued to invest significantly, to build on our position. We started with the industry-leading product portfolio in the world, and added to it significantly in 2010, with the launch of new industry-leading products. We continued to build strong relationships with many leading OEMs and operator partners. We have solid design win momentum across multiple segments, including automotive, energy and networking. And we successfully expanded our position in the M2M value chain to differentiate our offerings, and capture more value from each connected device.

In Mobile Computing, we have a focused strategy. We focus on key customer accounts, new product execution, and delivering the best support, highest quality and lowest total cost of ownership in the industry. We continue to invest in air interface leadership, particularly in 4G. We managed the business to drive sustainable profitability, despite potential revenue swings. In 2010, we executed on our Mobile Computing strategy well,securing our market share and positioning ourselves for the 4G growth cycle.

During the year, we expanded our channel positions with key operator partners and opened new channels as well. We launched our first mobile hot spot, and reinforced our air interface leadership position, with the launch of the world's first dual-carrier HSPA-plus air card products with Telstra. We also re-established our position as a leading provider of embedded module solutions for PC OEMs, with repeat design wins with our core customers and new design wins with Tier 1 players.

Supporting the two lines of business, we are also executing well on our strategy to drive leverage across the Company in key areas. First the businesses share core wireless engine technology, particularly in 3G and 4G air interfaces, that first adopted in Mobile Computing, and then rapidly transitioned to M2M. Second, we leverage our global footprint to build strong relationships with global operators and OEMs,and to provide world-wide R & D, sales and tech support capability to all our customers. Third, our fully integrated manufacturing and supply chain strategy drives scale benefits and lower costs for both lines of business.

Overall, I'm confident in our strategy and pleased with our strong 2010 execution. The investments we have made over the past four years are paying off, and despite some anticipated weakness early this year, I believe we built a solid foundation for the Company to drive further revenue and earnings growth in 2011 and beyond.

Looking more closely at our machine-to-machine business, we delivered another strong quarter to close out the year. In Q4, M2M revenue was $84 million, up 9% from $77 million in the fourth quarter of 2009, and up 10% sequentially. With all of our product lines contributing strongly. Our AirPrime embedded modules for M2M continued to lead the market with revenue of $68.9 million in the fourth quarter, up 13% sequentially. Growth was driven by broad based strength, as well as new design wins entering production, with key automotive, networking and energy customers.

Recent design wins include TomTom, who is using our modules in embedded navigation systems for Renault and Mazda. Garmin, who is working with us to develop LTE solutions for in-car infotainment. Cisco and NetGear, who are using our new LTE modules to deliver high-speed wireless capability to their enterprise and server router solutions, and AP systems, who is using our embedded modules and development environment to create smart metering solutions.

Moving up the value chain, our AirLink intelligent gateways and routers had another record quarter. In Q4 revenue was $13.4 million, up 17% from $11.4 million in the fourth quarter of 2009, andup 7% sequentially from Q3. And our AirVantage cloud computing platform continued to gain traction in the marketplace. In addition to the Telus announcement in October, we believe that a growing base of operators understand the compelling value that AirVantage can bring to their M2M business and we expect to announce more operator connection and collaboration agreements in the coming months.

While operators adopt our AirVantage platform, we continue to have success with a growing number of OEMs as well, such as ClearChannel, who will use our AirVantage platform and AirLink gateways for managing outdoor advertising locations, and Snider Electric, who was using our platform to manage electric vehicle charging stations. Overall, our outlook for M2M is bullish, and is supported by a broad base of customers and channels. Our investments in leadership and value chain expansion are driving improving results. Looking forward to 2011, we expect our core M2M industrial business to grow at about 15%, mostly offset by lower sales to Barnes and Noble.

I'll now move to our Mobile Computing business, which includes revenue from sales of our AirCard mobile broadband devices, as well as revenue from sales of our AirPrime embedded modules, to PC OEMs, and tablet manufacturers. While below our expectations, we had another solid quarter in Mobile Computing with revenue of $83.2 million in the fourth quarter of 2010, up 25% from $66.8 million in the fourth quarter of 2009. We continue to do well with our key operator customers, and are well-positioned to benefit from the accelerating 4G adoption cycle. At AT&T, the Shockwave USB modem is the fastest device in their portfolio, fully leveraging AT&T's investment at 21-megabit per second HSPA-Plus technology and is positioned as their lead mobile broadband product. At Telstra, our AirCard 312U, 42-megabit per second HSPA-Plus device gives them a definitive speed advantage over competitors, and is being promoted aggressively in the Australian market. At Sprint, Clearwire, and Time-Warner, we remain well positioned with our dual-mode WiMAX EBDO mobile hot spot and USB modem products, despite increased competition. And earlier today, Telus announced that they have launched our AirCard 319 USB modem to deliver 42-megabit per second performance to customers in Canada.

Looking forward, our 4G AirCard product pipeline is strong, and we have secured channel slots for these new USB and mobile hot spot platforms, with our key operator customers. We expect to launch these new products in Q2 and Q3. In addition, we have continued to secure new design wins with PC OEMs, including three Tier 1 players. Our team has been actively engaged with these customers for several months, integrating our AirPrime embedded modules and preparing for platform launches, which we expect to begin mid-year and to continue throughout the second half.

Short-term, as we transition key operator customers to our new 4G AirCard products, we are expecting weakness in our Mobile Computing business. Despite the short term weakness, we remain confident in our Mobile Computing market position and are expecting year-over-year growth in this segment of our business. Dave will now take us through a more detailed look at Q4 results and

Thanks, Jason, and good afternoon, everyone. We report our financial results on a GAAP basis. However, we also present non-GAAP results in order to provide a better understanding of our operating performance. Non-GAAP results exclude the impact of stock-based compensation expense, acquisition amortization, integration costs, restructuring costs, FX gains or losses on translation of balance sheet accounts and tax adjustments. Looking at the specifics of our Q4 2010 results, revenue was $167.2 million, that's slightly below our guidance range of $170 million to $175 million, as a result of lower-than-expected AirCard sales, and down sequentially from the third quarter, by about $5.5 million, driven by lower AirCard sales, partially offset by higher Machine-to-Machine sales.

On a year-over-year basis, revenue grew 16% over the fourth quarter of 2009. On a GAAP basis, gross margin in the fourth quarter was 29.2%. Operating expenses were $49 million. Loss from operations was $200,000, and net earnings were $800,000 or $0.03 per diluted share. On a non-GAAP basis, gross margin in the fourth quarter improved sequentially to 29.3%, up from 28.4% in the third quarter of 2010. That's mainly due to a combination of product mix, cost of good improvements and favorable FX movements.

Non-GAAP operating expenses were $43.2 million, down from $43.6 million in the fourth quarter of 2009, but up $1.9 million from $41.3 million in the third quarter of 2010. $1 million of the sequential increase from Q3 reflects the negative impact of higher Euro and Canadian dollar FX rates, relative to the USdollar. The other $1 million is mainly the result of higher R&D costs in Q4, associated with a number of new products under development in both Machine-to-Machine and Mobile Computing, including next-generation HSPA-Plus, LTE and WiMAX devices. Non-GAAP earnings from operations were $5.8 million, below our guidance range of $8 million to $9 million, but up from $3.7 million in the fourth quarter of 2009. Non-GAAP net earnings were $4.9 million, or $0.16 per diluted share, below our guidance range of $0.22 to $0.24, but up from the $0.12 per share in the fourth quarter of 2009.

Turning to the balance sheet, our financial capacity remains strong. In Q4, we generated $6.9 million of cash to end the year with $111.8 million of cash and short-term investments. This cash balance equates to approximately $3.55 per share, and the Company is also debt-free. Cash flow from operations was $13 million in Q4, which included a working capital improvement of $4.1 million, driven by a reduction of receivables, as we cleaned up outstanding amounts accumulated during our ERP conversion in Q3. Accounts receivable DSOs were 55 days at the end of Q4, down nicely from the 63 days at the end of Q3. Capital expenditures were $6.1 million in Q4, $3 million of which is related to new factory, tune, and test equipment as we gear up for the launch of new products, and the balance was largely driven by the purchase of R&D development equipment.

Moving on to guidance, we are providing guidance on a non-GAAP basis, which excludes stock-based compensation expense, acquisition, amortization, integration costs, restructuring costs, FX gains or losses on balance sheet accounts and tax adjustments. In the first quarter of 2011, we expect revenue to be between $140 million and $145 million. The sequential revenue decrease from Q4 is primarily the result of lower AirCard sales, as operator customers prepare to transition to our new 4G products, and lower sales of AirPrime embedded modules to Barnes and Noble. We expect gross margin percent to be stable to up slightly compared to Q4, and we expect non-GAAP OpEx to increase slightly, as a result of unfavorable FX exchange rates, new product certification, and related product launch expenses.

As a result, we expect non-GAAP income from operations to between a loss of $2.5 million to breakeven,And non-GAAP income to be between a loss of $2 million to breakeven or a loss of $0.06 per share to breakeven. Please note this guidance also reflects uncertain macroeconomic environment, and is based on current beliefs and assumptions, which are subject to change. Actual results could differ materially from guidance, and the risk factors are described in our regulatory filings. Given the decline we were expecting in our Q1 2011 revenue compared to Q4, I would like to provide some additional context for 2011.

Despite weakness early in the year, we see drivers in both of our business lines, which make us feel confident in our expectation for top line and profitability growth in 2011 compared to 2010. In Machine-to-Machine, we expect first quarter 2011 revenue to decline on a year-over-year basis by approximately 15%, compared to the first quarter of 2010, due to significantly lower embedded module sales to Barnes and Noble. In the first quarter of 2010, sales to Barnes and Noble represented about $27 million of revenue. In the first quarter of 2011, we expect sales to be negligible. For the full year, while we have design win continuity with B&N, we expect sales at B&N to be considerably lower than they were in 2010. Excluding B&N, we expect Machine-to-Machine sales to deliver steady revenue growth of about 15% on a year-over-year basis, reflecting the underlying health of the Machine-to-Machine market, and our strong Machine-to-Machine franchise.

In Mobile Computing, we expect solid year-over-year growth in the first quarter of 2011, when compared to the first quarter of 2010, but a sequential decline when compared to the fourth quarter of 2010. The sequential decline reflects the impact of product transitions, by our operator customers to new 4G products. Our view is market share and position remain strong, and we expect the launch of our new 4G AirCard products and embedded module sales to our PC OEM customers to drive good growth in the second half and for the full year. Now I would like to turn the call back to Jason for closing comments.

Thanks, David. To summarize, I believe we are executing well to our strategy. We are driving growth in diversification, and share leadership in attractive markets, such as M2M. I believe there is clear evidence of this execution in our full-year 2010 results, including top line growth of 24%, M2M growth of 54%, non-GAAP net earnings growth of 53%, and emerging from 2010 as the clear global leader in M2M.

While we are starting 2011 with some anticipated weakness, I'm confident that our fundamental position in both M2M and Mobile Computing remain strong and that we have visibility to strong growth drivers beyond Q1, particularly in the second half. In M2M, our underlying business is strong. Our core high-value industrial M2M business is growing nicely,and we expect that growth to continue. We also expect our sales to B&N to normalize at a lower but more sustainable level, as we transition this customer to new embedded module platforms.

In Mobile Computing, we are preparing for 4G AirCard product launches, and we have launch commitments already secured from our key operator customers. Our PC OEM customers, including new Tier Ones, are busy integrating our AirPrime embedded modules, and preparing for a series of new platform launches, starting in the middle of this year. I believe that these highly visible drivers, combined with the strength of our market position has poised to deliver year-over-year revenue and earnings growth in 2011, and establishes a strong foundation, upon which we can continue to drive profitable growth. With that Tracy, we can open the line up for some questions.

Your first question comes from Amir Rozwadowski from Barclays Capital. Your line is open.

Thank you very much. Good afternoon, Jason and Dave.

Hi, Amir.

I wonder if we could talk a bit more in terms of your expected product launches around LTE. You had mentioned you are looking for USB adopters as well as mobile hot spots. How comfortable are you in term of the launch schedule, i.e., the type of care and commitments that you expect from the second quarter and third quarter to support your launches?

We feel very confident. We have got the launch commitments already secured. The development is well underway, in some cases we are already deep into the lab certification process. So we are very confident that the launches are going to occur in roughly the time frame we've indicated. And we are pretty confident these operators will put a lot of wood behind these launches, as well, and then sell-through is to be determined, but with respect to the key timing with respect to launch, and our expectations of promotion, that's certainly strong.

So, is it fair to say then, in terms of the trajectory of these launches, are they expected to be -- you mentioned that they straddle the second and third quarter of this year. Are they -- if we can get maybe a bit more finer-tuned. Do you expect sales to recover in the second quarter in this specific area of your adapter business?

I want to be careful not to drift into Q2 guidance, Amir. Certainly, we are viewing Q1 as the low point. We would expect some recovery in Q2. We are expecting more significant strength in the second half of the year, as those new product launches take hold, and as we launch with PC OEM customers.

That brings me to another question. Looking at driving growth out of the Mobile Computing business, should we think of it more on the PC OEM side, or on the adapter side in the back half of the year?

I think we are looking at it is from both.

Okay.

I think we are putting up a -- candidly, a painfully low number here in Q1. So, we certainly expect that we have got significant room for upside in AirCards, and we certainly expect that we'll be launching with at least three to four large PC OEM players. That's revenue we haven't experienced at all in the past.

Okay. That's helpful. I wanted to clarify in terms of your outlook for growth on the M2M side, you mentioned that it's 15% X the contribution from Barnes and Noble?

That's right.

Thank you very much. I'm get back in the queue.

You bet.

Your next question comes from Mike Walkley from Canaccord. Your line is open.

Thank you very much. Just to build on the last question there, I just want to get a clarification, for your M2M business with your big consumer customer, down 15% year-over-year for Q1. Would you expect the overall M2M business with this tough comparison at Barnes and Noble to be up year-over-year in absolute overall Machine-to-Machine business terms?

I want to be careful not to give full year guidance on Machine-to-Machine specifically, Mike. The way we are thinking of it is B&N was a greater than 10% customer in the first half of 2010, right? Both Q1 and Q2. Our expectation is that's going to be a significant change here in 2011. The revenue from that customer stabilizes and normalizes at a new lower run rate. We add that to steady growth in our core industrial M2M. Certainly as we look to the second half, we would expect solid year-over-year growth in the entire OEM business, pardon me, the entire M2M business.

Okay. That's helpful. Just trying to think about the full year on the M2M side. And then, I guess, on the overall operating expense cadence for the year. Obviously a lot of testing for new interface coming to market. Even though you expect higher revenue in the back half of the year, would you expect absolute OpEx to be more stable or even down, relative to the product lines shipping and less testing needed. How do you think of OpEx cadence around the $40 million targets throughout the course of the year?

Hi, Mike, it is Dave here. We are going through a little bit of a bulk sheer in FX as we have some large product development costs and launch-related costs. That's expected to drive revenue growth later in the year. I would expect, as we get through this, we'll see our OpEx normalize below the current level.

Great. That was helpful. Jason, maybe just add a little more color. You touched on the design activity for LTE. Given, it makes sense with your larger customer maybe not buying HSPA-Plus in big bulk ahead of the LTE launch in Q2 and Q3. Can you provide any color maybe on the competitive dynamics in that channel with the switch to LTE and competitive threats for guys trying to take some share away from you at that channel?

Sure. I fully expect that there will be guys in there trying to take share from us. So far, we have always had competitors in that channel. I think we have competed very effectively against them, and have secured leading share positions. I have no reason to believe that's not going to continue, Mike. I certainly hope that new product launches with the new 4G adoption cycle would accelerate growth in that channel.

Got you. I'll pass it on. I look forward to seeing you guys at Mobile Congress next week.

Thank you, Mike.

Your next question comes from Jason North from Jefferies. Your line is open.

Hello guys. It's actually Peter Misek. Maybe if we can attack the question a little bit differently. I guess on the AirCard side, was there a particular driver beyond what you have described that was responsible for the slow down? Have you seen tablets maybe cannibalize PCs a little bit more? Was there a delay to LTE? Is there anything like that in terms of granularity that you can provide us with? Then I have a follow up.

Sure. The way we are thinking about it is number one share position continues to be strong. Although new competitors entering in places like Sprint, which I think is well-known. But by and large, share position, we have confidence in our share position going forward. With respect to cannibalization, I think the jury is still out on that. We are looking at the phone as a hot spot pretty closely. Demand cannibalization there appears to be modest at this point. It is a space we need to continue to monitor. With respect to pads, again our view right now is anyway, that doesn't seem to have a significant cannibalization effect on our mobile broadband business. These are fairly new factors that we have to continue to monitor. I don't think there has been a macro shift, if you will, with respect to overall mobile broadband market demand.

In terms of the cost structure, as you are sort of managing through this transition to LT, obviously you described that you have to spend for these new product launches. I guess what we would assume is we could assume some normalization for the later part of the year. As we push past that, is there an opportunity to maybe cut costs? Do you feel that the platform is at the right size at this point to drive growth and to balance profitability?

I think as David indicated, I think there is probably an opportunity to bring OpEx down a little bit in the second half. That's really a little bit of relief from the specific development and launch costs related to 4G products and other products.Beyond that is there an opportunity to bring costs down? We are not thinking about it that way right now. The way we are thinking about it is we need to be very careful to invest enough to maintain our leadership position. Because we do see very interesting growth opportunities. We also know that OpEx in the mid 40s is not where we should be. We are comfortable in the 40 to 43 range per quarter. And our plan is to manage the business in that range.

Thanks. Just one last question. In terms of LTE launches, not to be specific in terms of carriers, but maybe by geography. When do you expect European carriers to come online? They have been a big market for dongle USB modems, first here, and others. When do you see them pushing to LTE. Is that in the second half of this year? Or is that really a 2012 event? Then I'll jump in the queue, thank you.

They have been a small contributor for us in the past couple of years. With respected to our expectation for timing there, later is the way I'd characterize it, if your are comparing against players like Verizon and AT&T et cetera, I would say broad commercial deployment of LTE in Europe would come later. Probably 2012. Hopefully that represents an opportunity for us. But clearly, that's not modeled into our 2011 expectations.

Great thank you.

Your next question come s from Tavis McCourt from Morgan Keegan. Your line is open.

Hi. Jason, you mentioned a little about Barnes and Noble, and I was unclear, if you first said Q1 going to be negligible, and then you said flattening out at a sustainable level, so I guess, clarify, are they still a customer for this year, or is it negligible for the entire year? Secondly, you talked about embedded opportunities on PCs. Outside of Barnes and Noble, do you see opportunities with the tablet manufacturers, as those come to market over the course of the year?

With respect to Barnes and Noble, I think just some clarification there, they were an extraordinarily large contributor in the first half of 2010. I think Dave alluded to the revenue contribution in Q1 of 2010 of $27 million. Our expectation in Q1 of 2011 is that revenue will be negligible is our term, so it will be much lower in Q1 of 2011 than it was in Q1 of 2010. Now, we do have design win continuity with that customer. We are transitioning with that customer to a new platform.

We are going off the old platform to the new platform. That explains a significant part of the relative weakness in the current quarter. That's what drove my commentary around, we expect Barnes and Noble to normalize, if you will, at a better run rate than we currently expect in Q1 of this year. So, we think that will fumble up a little bit. We also think it is not going to be nearly as big as it was in 2010.

With respect to PCs and tablet players, I think we have provided you with commentary on our PC OEM design wins. We have a roster of Tier 2 PC OEMs. I could characterize that as continuity with those key customers. And a new set of Tier 1 PC OEMs, three of them, which we expect to launch with in the back half of the year. With respect to the tablet guys, and by the way, we expect those to be notebook launches, by and large. With respect to some of the tablet players, we view that as an interesting business development opportunity. And one that would represent upside to our current expectations. And we are in some interesting dialogue with some leading tablet and pad players. And certainly we are optimistic that we'll walk away with a couple of wins. We have nothing to confirm, with respect to design wins, with tablet OEMs at this point in time.

Great. A couple of follow-ups for Dave. First, can you repeat what the AirCard revenue was in the quarter? Then, I presume with the revenues down, you expect the cash flow to be positive in Q1, but wanted to confirm that.

Sure. So AirCard revenue in the first quarter -- let me just go back to my notes here. AirCard in Q4 was $83.2 million, in Q4.

Okay.

That was full Mobile ComputingSo AirCard specifically was $75 million.

Right.

Okay. Then on Q1, should we expect cash balance higher? Or will there be an inventory build heading into Q2?

Yes, I think we will use a little bit of cash in Q1, Travis, one of the reasons is what you suggest, is that we expect inventory will go up a little bit. It is low here at the end of the year.

Can you explain why, I would expect when sales a came in a little bit weaker than you anticipated, inventories went up higher how did you manage them lower?

We are working through some transition with Flextronics as we consolidate all of our production in one factory. With that comes a change in the inventory model between what we hold and what Flextronics holds. In the new model, Flextronics will hold a little bit more inventory. That really accounts for the change in year-end inventory.

Thanks a lot.

Sure.

Your next question comes from Todd Coupland from CIBC. Your line is open.

Yes. Good evening everyone. I'm still a little bit confused on the M2M base that we are supposed to grow 15% in 2011. Is there any way to true up a number for us, to give us a starting point?

Sorry, pregnant pause here.

Yes, no problem.

I think if you go back and look at our Q1 2011 numbers we have sized Barnes and Noble for you in that category. You can adjust for that and apply that 15%-ish growth rate on of that would be one way of doing it.

Okay. So the only number you really want us to adjust for is the outsize in Q1 from 2010? Because you expect them to come back with next-generation products later in the year?

Yes, we do have design win continuity. But, just don't want to overheat expectations there with that particular customer. I think revenues will be down quite a bit from what we saw, certainly in the first half of 2010.

Did that count because of the fragmentation in the market? Or do they have dual suppliers or -- is there anything going on there other than they are just getting less share of the reading market?

First of all getting back to helping baseline Machine-to-Machine. As Dave said, go back to Q1 2010, take out Barnes and Noble that gives you the core industrial Machine-to-Machine, and apply the 15%-plus growth rate to that. That gets you there. Barnes and Noble does not go to zero in 2011. It is considerably lower than it was in 2011, but it is considerably lower than it was in 2010. That's one thing.

So why is it lower? I'm not going to speak with respect to share for Barnes and Noble, but I will say, number one, to our knowledge, there is no other 3G module supplier to Barnes and Noble. But, they do have both Wi-Fi-only and Wi-Fi plus 3G versions of the Nook. Within their mix of Nook sales, there has to be cannibalization of the 3G version. That accounts for part of our expectation for lower revenue for that customer.

Okay. So basically the reader guys are sorting out the dynamics in the market, which is more downloads are happening in Wi-Fi than 3G, so they are going to bring a product out to appeal to that slice of the consumer base?

Yes, I don't know if I'd characterize it exactly that way. With respect tour customer. Clearly the customer can connect in a couple of ways. Wi-Fi or 3G. 3G comes with a price in cost premium. So for part of their customer base, they are trying to achieve a certain target cost of goods, Wi-Fi might be an interesting answer.

Part of their customer base will demand to have books downloaded at any time from anywhere. Of course that requires a 3G connection. How that mix plays out, we'll have to see. Right now though, our expectation is that Wi-Fi will have, Wi-Fi-only will have greater than 0% share of that. But 3G will continue to be a decent but much smaller contributor to revenue from that account.

Okay. And is there any useful history in sort of this last Christmas season in terms of the mix? Or did they not have a Wi-Fi-only product out?

They did. And we don't have clear visibility into model-by-model sell through rates at that customer. It would be inappropriate for me to comment with any level of specificity.

Okay. Second thing I wanted to ask you about, is I think you said last quarter that cash preservation activities at Clearwire was one of the reasons for the weakness in Q4. You expected some of that to bleed into Q1. Can you maybe bring us up-to-date on what's going on there and how that affected the fourth quarter and the outlook for Q1?

It definitely had an impact on Q4. We expect that situation at Clear will not be completely eliminated. So I think it will still be a factor in our business with Clear. And we believe that's factored in our Q1 guidance.

Okay. But I mean, for that to be sorted out don't -- I mean -- seems to me they have to get their balance sheet issues worked out.

You want to be careful not to speak on behalf of Clear here. Right? They have implemented a series of cash management efforts. Part of that is tighter control over inventory. And part of that is opening up fewer markets, right? But they are still opened for business. So if they have customer demand they have to meet that customer demand. I think to the extent that they drive increases in customer demand, we are here to supply them. They are still a good customer. We are expecting them to continue to buy gear from us. But we are careful with respect to our expectations for Q1.

Is there any way that you can answer this question and then I'll just leave it? For what you are seeing in terms of the pace of business there, would you expect it to be up in Q2 versus Q1, even if there is no change to the sort of the current state of affairs there?

Well, I -- yes I'm not just going to give you that level of detail.

Okay. That's fair. Thank you very much.

Your next question comes from Sera Kim from GMP Securities. Your line is open.

Hi, good evening. Last quarter you mentioned you had three Tier 1 PC OEM wins. When you say you have three today, is it still the same Tier 1 PC OEM wins?

Same three, yes.

Okay. I was wondering if you could provide a sense of the average size of these deals are. You mentioned you expect the second half to be a strong contributor for these PC OEM design wins. I'm trying to gauge how much more of an increase we'll see on the PC OEM revenue side relative to the first half, or what we have seen in the last couple of quarters?

We are going to be careful with what we share with you on that. In the fourth quarter, revenue from PC OEMs was about $7 million in the fourth quarter. That was part of our Mobile Computing sales.

Okay.

And, if you look back -- so that's one bookend for you. If you look back at the peak for us, the peak for us in 2008, Q2 of 2008 revenue from PC OEMs was $25 million. So that's your other bookend. Do we expect it to grow from $7 million? Yes. Do we expect it will grow to $25 million? We don't know. We certainly hope it does, but we don't know yet. So much depends on number of platforms and how successful the PC OEMs are and sell through. Clearly our expectations are for growth above the current base line.

Okay, and earlier, you mentioned you expected to see year-over-year growth in revenues. I wasn't for sure, just for clarification, do you expect to see year-over-year growth in M2M revenues?

We abstracted that intentionally, Sera, because we want to try not to get roped up into full-year specific guidance. We realized number one we are serving up weak guidance for Q1. We didn't want to have the analyst community investors believe that was the new normal. We went outside our comfort zone a little bit and indicate had the we expect growth, overall consolidated revenue growth in the Company for the full year 2011 relative to 2011 relative to 2010 and corresponding increase in earnings, as well.

Okay. Would you feel comfortable letting us know if you believe the M2M revenues will be over 50% for the sales for 2011?

Not yet Sera. I'm comfortable telling you it was 50% in Q4 though.

Okay. Just final question. Do you comment on how many design wins you have for the AirPrime AR services? I'm wondering were you able to see meaningful revenue from that offering?

Yes, design win momentum with the AR series, which is our automotive series of embedded modules, has been excellent. We have had an excellent response from the market. We have secured a number of design wins. Some of those are in active integration. Others are quite new, and won't contribute for some time.

Automotive design wins, they have a pretty long gestation cycle. They take a good couple of years from win to deployment. I would be patient on that. We'll see some revenue contribution, probably starting this year. But from some of the more recent design wins, probably no contribution until 2012 and beyond. And our expectation is these design wins will A, layer nicely on top of each other over time, andB, be very long product cycle design wins.

Okay. Just last question. I know you mention every quarter in term of which vertical markets in M2M you are seeing strength. I guess this quarter you saw strength in the networking side of management. Can you provide a break down in terms of the different vertical markets for your M2M revenues?

No. Not at that time, Sera.Directionally, the ones we mentioned first tend to be the bigger contributors. The thing to realize about our core industrial Machine-to-Machine business is, it is highly diversified, both in terms of number of segments and number of customers within those segments.

I guess I was trying to get an idea of how much of the core industrial revenues you are getting from design wins that were one year ago, versus the recent wins from the last couple of years.

We don't have that data to share.

Okay. Thank you.

Your next question comes from Gus Papageorgiou from Scotia Capital. Your line is open.

Yes, just two quick ones. Dave, did you go through sales concentration? Where there any 10%-plus customers in the quarter?

Yes. I guess we had two customers greater than 10% in the quarter. They in total amounted to about 25% of total revenues.

Okay. You did mention hot spot abilities being built into smart phones. It look like iOS upgrade will have that capability. Looks like Blackberry 6.1 will have that capability. I'm sure the Google Android will develop those capabilities. What do you think that's going to do to the market? What's your sense. What do you think is the demand for solutions for the PC versus just using your smart phone?

I think it is a great question, Gus, and one that will be answered over time. I'll point to a couple of things. Since we started in this business in 1993, users could always connect their phone to their laptop computer. So, it is true tethering has gotten better and more elegant and faster, but it's still a tethering solution. Since 1993 that's been an alternative for customers. Yet, dedicated mobile broadband devices as a market has grown considerably.

Our view right now is a potential disruptive threat that we have to keep an eye on. However, it's got a couple of things. It's got the benefit of raising the awareness of being able to connect to mobile broadband networks with a number of different kinds of devices. That could increase, overall, total addressable market. I think for users who chose to connect that way, there are certain performance [satisficing] that has to be done. In terms of power management, and speed of the AirLink.

So, for a significant part of the market, that will probably be a perfect solution. And for a significant part of the market, it won't be good enough. For that other part of the market, that's where we are a good fit. That's the way we are thinking about it right now. Clearly it is something we have to continue to monitor.

Just the carriers historically, the carriers usually subsidize your devices down to very expensive rates so that getting a discrete solution just for your PC made sense because you really weren't paying more and you got -- you were paying essentially the same for the extra data service. Do you expect that to continue? Or you think they might just charge slightly more for the mobile tethering, hot spot tethering on devices and not subsidize the modules as much?

Our expectation is that subsidies will continue on our class of products. And you could argue there is an extra motivation, too, for the operator, right. Because with our class of product, you pick up an added subscription, and subscriber count is a pretty key metric that operators pay close attention to. And a pretty high ARPU subscriber, as well. I don't see that fundamental motivation changing. Certainly we expect the subsidy to continue.

Great. Thanks.

(Operator Instructions).Next question comes from [Kevin Manning] from BMO Capital Markets. Your line is open.

Could you tell us what's the Barnes and Noble revenue for the year was?

No we can't.

Okay. What about your legacy Wavecom revenue for the quarter?

We can't tell you that either. It's been in discussions almost two years, so our Machine-to-Machine business, gosh, we have introduced a whole new group of products that were developed by the new combined company and a bunch of products that were originally developed in Mobile Computing now being sold through our Machine-to-Machine channel. We are truly a fully integrated company now.

But, I would say it is up considerably. I don't know exactly what that number is. The last time we stopped tracking it, Kevin, I believe it was at $45 million a quarter. That goes back a good year. That was up from Q1 of 2009 when we closed the deal with Wavecom, but below 30. So from below 30 to 45. We have continued to certainly grow it from that base with combined product lines, combined channel, et cetera.

If you strip out the Barnes and Noble and AirLink and AirVantage, is it still growing?

Oh yes, absolutely. Yes. Growing pretty nicely.

Great. Great. Thanks.

Sure.

There are no further questions at this time.

Okay. Great. Well, thank you everybody for joining today's call. As usual, management will be available here in our Vancouver office should you have additional follow up questions. Thank you, Tracy.

This concludes today's conference. You may now disconnect.