Well, "geek" it is, as I decided not to wait to reply to you.
<<I won't try to prioritize or quantify the following but a partial
list of accomplishments is:>>
Yore post is an excellent one. The list of accomplishments for Q2 IS impressive - and accurate. May I add a few more?
10. The new "PISTOL" Lab in Massachusetts
11. "MEGA" site announcement (may be the WestHills site with improvements)
12. Noticeable P/R and Website improvements.
13. Increased ownership of New Access (really an assumption here as of now)
14. Announcement of Aranea.
<<On the debit side we did not hear of a major alliance during the 2nd Q like we were led to believe last year. >>
Yes we are still waiting on that - although in fairness to Noam, he really said " around mid-year" to my recollection, not Q2, so there is still a bit of time. I think he may have pushed this in the "second half" of the year in one of the CCs, but my notes don't show it.
<<So much is still potential but when we see how the marketplace is willing to capitalize the potential of Juniper, it is easy to conclude that MRV is a better buy today at 13+ than it was a few months ago at 6+.>>
Better buy? Well, if you could "see" your list of accomplishments for Q2, when the stock was at $6 (as I think I did, at least in part) then buying at $6 was definitely better <VBG>. Being able to "see" into the future is possible to some extent through research, and that is what I have been pushing the thread to do - "work".
I see your point though. Most people did not "see" those things then, but are just seeing them now. In that respect, yes MRVC IS a better buy now than then BECAUSE of that list of accomplishments and what it means for the future. But there are more "accomplishments" still to come that the market cannot yet "see".
<<Sector, if this company is even half as good as we think it is then why is it valued so cheaply by the marketplace?>>
Boy, talk about tough questions! <g>
Before I answer that, lets examine the "good as we think it is" part.
MRV Division
The MRV division produces both passive and ACTIVE components. The latter is a more difficult accomplishment. I am not really knowledgeable here, but what I can see looks good. This division has been their most consistent performer, with steady growth every year. I think that they could have grown even faster but as they moved into networking their emphasis shifted to that arena. Their shortfall in Q3 1998 shook management up and they expressed the need to grow their revenue faster. The MRV division is one obvious place. Their new foundry not only gives them more state of the art capability, but it increases their capacity by up to 8 times. During my tour of the facilities last October, Noam hinted of a possible significant contract for the MRV division this Summer.
Are they really looking to sell this division? I don't know, and while my "long-term" thinking says "don't do it", my short term thinking says to go ahead.
Can they get 10X revenues or more? I certainly think so, given that the future trends are all positive and this division (like the others) is positioned to take full advantage of them.
Sadly, this division does indeed appear to be worth more than double the market cap of the whole company. If MRVC proves this to the market with a sale, (or hopefully in another way), this could be a basis for our next move up.
NBase-Xyplex
I view the Xyplex acquisition as a major success, but some people (including many in the market place) may not agree with me. They only paid $35 million for Xyplex (plus 3 year warrants at $35, now over 16 months old). In exchange they got MANY things that IMO exceed that price many times over. I've done the full list several times before, but at the top of the list is "THE CODE". That alone, IMO makes the purchase worth it. Look at the richness of interfaces of the new products, then look at the interfaces in their old products, and you will see what I mean - and that is the difference between a low-end niche player and a full spectrum Networker.
Then they got a doubled sales force (with a new customer base and increased domestic presence), an East coast facility, Engineers, R&D personnel, 8 patents, improved customer support, and a growing "deferred revenue" item, where they get income through consulting and support.
Yes, they also got EdgeBlaster and EdgeGuardian, which obviously needed additional work (which is now mostly done) before meeting their original expectations.
They also have a major router still in development (not much is known, but it probably comes close to Aranea) and a family of optical networking products still unannounced, but scheduled for the end of this year.
Charlotte's Web
What a great deal for MRVC! They took advantage of a situation where, apparently several (only about 10) engineers had a great concept, but not all the resources needed to bring it quickly to market.
Also, what a great deal for Charlotte's Web! You know that timing is critical in this marketplace. To build a full fledged company to develop and market Aranea would take immensely longer and require immensely more capital and effort to build not only the product, but SOFTWARE, facilities, R&D equipment and staff, a sales and marketing staff, a plant to build and ship equipment, customer support organization, etc, etc, etc.
In what IMO, is a match made in heaven, MRVC supplies those items, while Charlotte's Web concentrates on what they do best, developing a monster router for the carrier market. Charlotte's Web had to give up a majority ownership to MRVC for a relatively small amount (in the range of the $3 million for New Access?), but then a 100% ownership of a product that gets to market way too late is not worth much. They have a much better product than the Juniper M40, which is only about 6-9 months ahead of them in timing.
Is a spinoff for IPO possible here? Probably yes. Can MRVC retain part ownership and benefit from that? Hopefully yes. Is an IPO the best route? Maybe, maybe not (it sure would be good for shareholder value).
IMO, Charlotte's Web has better prospects than Juniper but is much less known in the market place.
New Access
Another great deal for both sides. Another great concept in another about to be hot market. A similar situation to Charlotte's Web - and MRVC is getting a 60% ownership for $3 million that could be worth multiple hundreds of times that within 2 years.
HyperChannel
Fast growing, already profitable, and a major new trend. It remains to be seen how much revenue they can generate. I think another excellent move for MRVC, but we need to know more.
<<why is it valued so cheaply by the marketplace?>>
OK, I think for several reasons:
Did you ever have a nickname given to you as a kid? Or did you ever have a less than favorable "image" in school or in business?
"Nerd".
"Geek"
"Clumsy"
"Dumb"
"Out of it"
Remember how hard those things are to shake? Sometimes many years, and they linger long after changes have occurred.
"niche player"
"low end switches"
"commodity products"
"distrust for management"
"poor P/R"
"poor I/R"
"low visibility"
etc,
etc.
MRVC has such baggage in the marketplace, and IMO it will take time and lots of it to change those perceptions. Until then we are viewed with much skepticism - and a low P/E and P/S.
This can be taken as both a negative and a positive.
The negative is as you say we remain valued so cheaply in the marketplace - and may be for some time until visibility improves. IMO, that means winning some long term contracts.
The positive is that that list of accomplishment you gave, and the prospects we all see waiting to blossem, can not only increase our earnings in a major way, but also go a long way towards changing our "image'.
That is what keeps me here. Earnings alone could warrant a triple in the next 2 years.
And if we ever got a reasonable P/S and P/E besides? You provide your own answers to that! |
