Hi, everyone. I was away for a couple of days but back now. It's good to see a few posts - even if still no news (John, you know MRVC better than to expect THAT <g>) or stock movement.
Stu, it is easy to forget that MRVC is making a bold effort to dramatically increase their R&D and SG&A to move from a niche switch vendor to a full fledged vendor of next-generation products.
It is also easy to think that MRVC slipped significantly in Q3 with their 6 cents EPS. However revenues were only down 4% in a slow Europe Summer quarter.
I just ran my EPS model for Q3, using the same R&D and SG&A numbers from Q2 and all other numbers the same as reported (tax @ 28.75%). Interestingly, EPS would have been $0.20 basic and $0.19 diluted. We all would have been ecstatic with that, given the earlier warning.
I think that not only was management surprised by the revenue shortfall, but they also underestimated how drastically EPS would be hit, by their infrastructure investments. They put a cost cutting mode in effect for this quarter and revenues will be higher. They are also working to increase the Revenue contribution from the MRV unit, which is very steady - much less subject to seasonal variations of their Networking products.
So those of you looking for a silver lining should find it in this post. Those looking for news - well this is just not a "newsy" company.
Now to try to answer Stu's questions - not easy <g>
<<What the h___ is happening here. Can someone explain the trouble with the company and or stock? >>
OK, because Europe was slow in Q3, and the company knew it was growing it's infrastructure, they warned - and in typical MRVC fashion they picked the worst market day of the year to do it. Noam had just returned from a mult-day trip to Italy on that day. I have to think he wasn't even aware of the terrible market conditions that week. I get the feeling he returned, had a hasty meeting and a decision got made to pre-announce that day. In other words, I think other management waited for his return and there was NO PLANNED PRE-ANNOUNCEMENT DATE UP UNTIL THEN. They also didn't have a conference call planned.
Noam also mentions that margins will be lower due to increased competition and that their Optical Networking products will be delayed. With no CC to provide details the stock plunges. The company scrambles and sets up a CC for the following Monday, but the damage is already done. The above is how it seemed to me at the time.
<<Is there a fundamental problem?>>
With their products, I think not. Oh, they let competition catch up with them on Ethernet switching, while they were concentrating on Xyplex, but they were able to respond quickly with faster Ethernet switching products. The delay in the Optical Networking was due to a supply of parts problem (or so they said at the annual meeting) rather than any technical hurdles. Edge Blaster/Guardian is ramping slower than expected, but they are responding with asked-for features in Q1. Fiber Driver will be a big winner. Their carrier router should be a winner also.
<<Has management lost it?>>
The fundamental problem is with management. They are proven excellent technically and in growing their company to this point. However, they are being stretched to grow from a small company to a larger one - a difficlt time for every growing company that gets to this point. This means they have to add in the infrastructure to do this and add partners, and do things like manage the street and marketing better. Can they make a successful transition? Well the semester is not over, but they just got a mixed report card, and hopefully a wakeup call:
Handling of the street: F
Marketing 101: D
Executive Information Systems 101 D-
Infrastructure Growth: B+
Response to competitive pressures C+
Current technology: B+
Product Planning for the future: A-
Partnering/Strategic Alliances: Incomplete
<<Have their products been obsoleted? >>
IMO, no way. But to succeed in the carrier market place with their next generation products they have to partner. They have said they are working on this and will announce by mid-year 1999.
OK, so:
Not much news:
Street uncertainty for at least the next 6 months
A positive Q4 surprise will start us moving in the right direction, but it will take contract announcements or alliances to get the stock back to early 1998 levels.
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