MRV Communications, Inc. * (NASD: MRVC $91 5/8, Strong Buy) Price Target: $304
Chet White (310) 443-3406
£ Since its high of $194 7/8 on March 8, MRV's share price has declined 53%,
significantly more than that of many of its optical networking peers. During
this time, MRV has continued to make progress on many fronts, announcing new
subsidiary RedC Optical Networks, world-class strategic investors in Zaffire,
and new leading edge CWDM (Coarse Wave Division Multiplexing) OC-192 optical
components.
£ RedC Optical Networks is an emerging DWDM (Dense Wave Division Multiplexing)
device and solutions vendor. RedC reported approximately $1.5 million LTM sales
of its DWDM optical amplifiers and Add/Drop modules. MRV owns approximately 35%
of RedC. We believe that RedC is poised to benefit from demand in the most
exciting Internet infrasctructure segment, the optical networking market. Recent
industry estimates from Pioneer Consulting, IDS and RHK forecast that this
market will grow from $5 billion in 1999 to more than $25 billion in 2003.
£ MRV announced that Williams Communications Group, Inc. (NYSE: WCG $51 7/8, not
rated) and Broadband Office made a strategic investment in Zaffire. Zaffire is
expected to ship in Q2 and potentially IPO in Q3. We believe that Zaffire is
positioned to be a leader in the metro and regional optical networking arena and
represents a fast track roadmap of business development for MRV's incubator
strategy.
£ MRV also announced the industry's first CWDM OC-192 (10 Gbps) transceiver
module. CWDM's lower-precision components, lower energy demands, limited cooling
(no fans) and more compact size allow MRV to offer per port price points of
$6,000, approximately one-third of DWDM's. The price, performance and size
advantages should enable ATM switch, IP routing and optical networking vendors
to take full advantage of the exciting opportunity in the rapidly emerging
access and metro area. We expect to hear of major customer wins in Q2.
£ In our opinion, the recent share price weakness reflects investor concerns
about the limited visibility into MRV's 12 early stage startups and
restructuring of MRV's two core businesses. Given the solid prospects of MRV's
two mature subsidiaries, Optical Access (optical components-passive and active)
and Nbase/Xyplex (service provider solutions), continued progress in developing
its 12 early stage start-ups, and potential to emerge as the leading Internet
Infrastructure incubator (CMGI market cap. $32 billion, ICGE market cap. $24
billion), we recommend that investors take advantage of MRV's recent share price
weakness.
£ We reiterate our Strong Buy rating and maintain our 12-month price target of
$304 per share. |
