Sierra Wireless Inc. (SWIR), a leading developer of OEM wireless modem cards and access solutions, declared third quarter 2008 financial results below our estimates.

The company continues to be challenged with intensifying competition in the PC OEM market, coupled with unfavorable economic conditions. We remain concerned that a severe global economic downturn may reduce demand for wireless data cards and USB modems moving forward.

Furthermore, Sierra failed to launch one of its innovative products with a key wireless operator during the reported quarter. This is in addition to management's lukewarm outlook for the fourth quarter. On the other hand, the company has a strong balance sheet and its current valuation, at its historical low earnings multiples, is trading near its net cash position. This may limit downside movements to a certain extent.

Sierra is trading at 6.4x our estimated 2008 earnings, which represents a significant discount to both the S&P 500 P/E metric and the comparable peer group median forward earnings. With respect to other selected valuation metrics, the stock is also trading well below the peer group median. We, therefore, maintain our Hold rating and the same six-month valuation target of $10, based on P/E of 8.5x our 2009 estimated earnings, as valuation forecasts trend closer to the S&P 500 average.

Nalak Das contributed to the report.