Truly a matter of reality vs. emotions...
Let's straighten a few things out. Forgive me if I am being too simple.
First, there are no fundamental reasons why the MRVC stock price has dropped over 40% in one month, particularly in the face of triple-digit growth. The reasons for such movement are *purely* emotional, and driven by the "traders market." It is true that some of the other networkers will not enjoy the MRVC growth rate over the coming years. Note, the growth rate for MRVC's Fast and Gigabit Ethernet will be triple-digit in 1997 and beyond according to several industry sources (IDC, Dell Oro, et al).
MRVC knows this well. For example, the following was posted on America Online on March 17th:
"I spoke with Zev, the Chief Operations Officer for MRVC, at about 4:15 pm today, L.A. time. He had just read the Giga Labs announcement that had been faxed to him. , that there was "no slowdown for MRVC" from prior quarters, that one could only base one's earning projections on prior performance (implying that the current quarter, though not yet completed, was running just as well as the past quarter), that MRVC is a "multi-technology" company, etc. "
Second, let's mention the Intel price cuts on the Fast Ether Adapter cards. These were--and will continue to be--a catalyst towards the sale of Fast Ether switches. That is to say, when the adapter cards are configured in a network with a number of PCs, a Fast Ether switch upgrade is called for. The effect of low-priced adapter cards to switch sales here is akin to lower DRAM prices improving PC sales and margins. There is no other way to look at this. MRVC derives virtually NO revenue from adapter cards...3Com does.
Third, announcements from other vendors concerning Gig Ether are *not* a "disaster" for MRVC. In fact...quite the contrary. This is because networking is based on interoperability and ACCEPTANCE OF STANDARDS. There is no way for a networking standard to "make it" unless everyone adopts that standard. So, when you hear about larger players supporting technology (Cisco comes to mind), consider this an endorsement for MRVC and smaller players. Sure, MRVC may be ahead of the competition...however, it is a COMPLEMENT to MRVC's strategy when other players large and small announce products IN SUPPORT OF the same networking technology MRVC is already well-along on.
Let's review:
1) MRVC is in a networking market which is EXPANDING IN THE TRIPLE DIGITS, virtually undiluted by markets which are not growing as fast (such as ATM).
2) MRVC is in a market which is IMPROVED by the price reductions in network cards that are hurting companies like 3Com.
3) ATM is challenged by Fast/Gig/IP solutions, and companies which offer competing technologies, or who have "diluted" offerings, face a challenge. Cascade and Fore come to mind. Cisco faces a challenge, and by the way is ENDORSING Gigabit Ethernet.
4) MRVCs valuation is insanely low. A company which trades at a forward P/E in the 20's, with a growth rate in the triple-digits???
5) Several months ago, I remember negative press about MRVC. A few months before that, I remember negative press too. These cycles seem to coincide with something I can't quite put my finger on...could it be earnings QUARTERS...interrupted only by the timings of options expiration???
I'm about to recommend a sizable re-allocation to several of my advisees. Collectively, we're kind of a mutual fund. We're here...in the high tech industry. We know where the trends are--and have fat salaries and negative unemployment. We know where the slowdowns and speedups are and don't need to rely on "heard this" and "heard that" sources.
Dan |
