globes.co.il
Comeback kids
MRV Communications and Silicom have climbed back after taking a battering in the crash of 2000. M-Wise started out in 2000, but its latest comeback could be no more than a flash in the pan.
Shlomo Greenberg 30 Jan 07 16:55
It's been some time since I last wrote about MRV Communications Inc., one of the biggest hits of the bubble era. Founded as MRV Technologies in 1988 by 2 Israelis, Prof. Shlomo Margalit, and Noam Lotan, the company actually first
started out as an incubator company focusing on optics and telecommunications infrastructure, and changed its name to MRV Communications at a later stage.
In 2000, the stock reached $87 in values adjusted to 2007, and by 2002 it had crashed to $0.75. MRV is not an Israeli company but it has an R&D center in Israel and an Israeli management team. The success of companies such as JDS Uniphase CP (Nasdaq: JDSU), and Corning Inc. (NYSE: GLW) led many experts to believe that fiber optics was the future, and MRV, as an expert in optical products, provided enough dreams to ensure it was given a huge value on the market.
The subsequent bursting of the bubble, which brought fans of this technology on Wall Street back down to earth, was a severe blow to MRV. If in 2000, every optical dream received countless valuations, by 2002, optical companies were no longer getting any valuations at all. In actual fact, the
commonly accepted view after the bubble burst was that optical data transmission was the field that had been hit the hardest by the crisis. "There's a surplus of optical infrastructures big enough to last for the next 100 years," claimed the experts, a statement that dealt a fatal blow to
companies such as JDS, Corning, and even Harmonic, whose technology is also tainted with optics. MRV's management, however, has every reason to feel good if only because of the negative approach of the experts in cloud nine land on Wall Street, since the company is making good progress on Main
Street, in stark contrast to the predictions on Wall Street.
MRV's sales have risen from $239 million in 2003 to $352 million in 2006, while its net loss has narrowed from $27 million to $2.5 million in the same period, with analysts covering the company predicting that it will post a net profit of $12.5 million on $400 million sales in 2007. The stock started the year at $0.75 but its progress is definitely in line with the company's business success. It has climbed 425% since the end of 2002 but if you compare this with other companies that were hit hard in the crisis in
2000, you will see that MRV has been wronged. But we're dealing here with investments not injustice, and this is where Wall Street guru James Cramer enters the picture.
Two weeks ago, on January 12, Cramer claimed that MRV was "a great speculative story." What he is referring to? MRV is made up of 3 different businesses, a network systems integration division, a network component division, and Luminent. Cramer claims that Luminent is the most appealing of all and that it could well be floated at a higher value
than MRV itself, which currently has a market cap of $495 million. Cramer's comments put the veteran company back in the spotlight, and anyone looking at it with its current value and management team will conclude that on this
occasion, Cramer is right and not just because of Luminent.
What does Luminent do? It offers a entire portfolio of optical components for use on metro transceivers. The technologies here are highly sophisticated. The company's CEO is Dr. Nir Margalit, son of MRV co-founder and chairman Prof. Shlomo Margalit, who serves as company secretary and CTO and who has founded a number of other companies too. Margalit senior is a former faculty member and associate professor at
the Technion Israel Institute of Technology and winner of the Israel Defense Prize for his work in developing infrared detectors for heat guided missiles. MRV's president and CEO is Noam Lotan, formerly managing director at Fibronics, one of Israel's biggest technological stories. Fibronics was
ultimately a failure but it still produced a generation of
technological geniuses, the most prominent of whom, so I am told, is Lotan. Last week MRV announced that it had acquired optical component supplier Fibrexon Inc. for $131 million in cash and stock.
So is it worth buying MRV shares? My feeling is that it is, but having said this, it would be best to wait until the
Cramer effect wears off. |
