Sierra Wireless hurt by Metricom connection

Shares closed down $5.40, or 28 percent, to $14.

The maker of PC cards, modems and software for wireless communications reduced its second-quarter estimates and gave third-quarter projections that were below Wall Street's forecast, citing slowing orders from its carrier customers and the possibility that one customer, Metricom, could go out of business. Metricom is the company behind the Ricochet wireless service.

The company said late Friday that second-quarter revenue is now expected to be $18 million to $20 million, far below its previous forecast for $24 million, but showing 100 percent growth over the comparable period last year.

Excluding charges, the company is now expected to report a loss of between $800,000 and $1.5 million, or 5 cents and 9 cents a share, compared with previous forecasts for a profit $500,000, or 3 cents a share. With charges, including a one-time charge for excess inventory of $8 million, Sierra Wireless expects to report a loss for the second quarter of between $11.8 million and $12.5 million, or between 73 cents and 78 cents a share.

The company also gave its first forecast for third-quarter results. Revenue is expected to come in at $21 million, with net earnings of $100,000 and earnings per share at breakeven. First Call's consensus of eight analysts had predicted earnings of 4 cents a share.

Sierra Wireless said it is cautious about its outlook due to uncertainty at one of its wireless carrier customers, Metricom, which is restructuring and has indicated it will soon require additional financing to survive.

On a positive note, CEO David Sutcliffe said in the release that the company's order book looks strong "with established wireless carriers, including AT&T Wireless, Sprint PCS and Verizon Wireless," already signed up for its new products.

Analysts also found some positives in the company's long-term outlook, though many downgraded the stock Monday.

"Clients who share our long-term positive view on Sierra should look to a $12.50 entry level," Said TD Newcrest analyst Andrew Lee, who downgraded the stock to "reduce" and gave it a $16 price target Monday.

"We are lowering our rating to 'hold,'" Credit Suisse First Boston analyst Marc Cabi said in a research note, citing slower demand from the company's customers across the board and problems at Metricom, where Sierra Wireless has a $30 million, one-year contract. But "revisions are possible" upon successful sales of the company's next line of products, he added.

Cabi also lowered his rating to "hold" on competitor Novatel, which fell 15 cents to $2.24. Novatel also gets a big chunk of its revenue from Metricom.

BMO Nesbitt Burns analyst Ray Sharma downgraded the stock to "market perform" from "outperform" but said his belief that "Sierra boasts a strong management team with a prudent approach to running its business" hasn't changed. Nevertheless, it will take more carrier contracts to provide clear forecasts for 2002 estimates before the analyst can upgrade the stock again, he noted.