The most glaring items in the several-day-old "Center for Financial Research and Analysis" report are as follows:
1. "Despite Sharp increases in Revenues and Earnings, MRVC has produced Negative Operational Cash Flows in Recent Periods, Leading to Quality of Earnings Issues."
Another way of saying MRVC has grown by acquisition. In fact, the largest percentage of MRVC earnings come from NBase, which MRVC acquired. I believe Ascend (ASND) has the same "negative cash flow" problem.
2."Recurring Operational Cash Deficit"
Last time I looked, cash increased serially. Perhaps I need to look again? By the way, isn't this the same as #1?
3. "Possible Earnings Management"; "Shifting of Expenses with One-Time Charges"
Same as #1: MRVC has grown by acquisition. I'd rather see a company expanding than "resting on its laurels" (ahem, Bay Networks comes to mind).
4. "Use of Warrants to Inflate Earnings"
I suppose Intel and INTCW (Intel warrants) have the same problem? .
5. "Lack of Patent or Copyright Protection"
Citing "lack of patent or copyright protection" in the context of a networking company is patently absurd (pun intended). None of the net companies rely on patents and copyrights...rather, what's critical are the published COMMON standards, with occasional proprietary improvements sprinkled in. Examples of proprietary improvements would be Cisco's "network OS" as well as MRVC's patent-pending CSMA algorithm.
It's the common (UNpatented) standards like Fast Ethernet and Gigabit Ethernet which allow networking hardware to interoperate. In fact, if "patent and copyright protection" predominated at all in the networking industry, the Internet would likely NOT EXIST as we know it!
In my opinion, point #5 strongly suggests that the "report" in question is really a "boilerplate fabrication"; moreover, the author(s) have little or no knowledge of networking. So, what's it worth? As the report curiously came out the same day as the recent MRVC conference call, it would seem to be an attempt at an "insurance policy" on someone's "in the money" options and/or short position.
Dan |
