too much information to post this way.
If anyone would like me to e.mail them a complete copy
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CUSTOMERS
The Company has sold its products worldwide to over 500 diverse customers
in a wide range of industries, primarily; data communications,
telecommunications and cable TV. The Company anticipates that these customers
will continue to purchase its products in the foreseeable future. No customer
accounted for more than 10% of the Company's revenues in 1995, 1996 or 1997.
Current customers include:
NETWORK SWITCHING
COMPUTERS AND ELECTRONICS
GOVERNMENT AGENCIES
- AMP Incorporated
- Engel GmbH & Co. - General Services Administration
- Fujitsu Ltd. (Japan) - Ministry of Agriculture, Germany
- Intel Corporation - Ministry of Justice, Netherlands
- International Business Machines - Ministry of Social Security (Belgium)
Corporation - MITI (Japan)
- Newbridge Networks - South African Police
- South Hills Electronics - US Coast Guard
BANKING, FINANCE AND INSURANCE DIVERSIFIED AND OTHER
- Bankgarot Sweden - ADP
- Chase Manhattan Bank - Bayer AG
- GE Capital - Eastman Kodak
- HBOC - Tele-Communications, Inc.
- Nationsbank - The Walt Disney Co.
FIBER OPTIC COMPONENTS
DATA COMMUNICATIONS TELECOMMUNICATIONS
- Bay Networks, Inc. - Broadband Network Inc.
- Cabletron - Ciena
- Cisco Systems, Inc. - Crosscom
- Optical Data Systems - Reltec
- Packet Engines - Tellabs
- Xylan - Transcom
VIDEO AND VOICE COMMUNICATIONS INSTRUMENTATION
- Augat Communication Products Inc. - EXFO
- C-COR - GN Nettest
- General Instrument - Noyes Fiber Systems
- Kathrein Werke - 3M
- Texscan - Wandel & Goltermann
MARKETING
The Company markets and sells its products under the NBase Communications,
MRV Communications, West Hills LAN Systems, Xyplex and Xyplex Networks brand
names. Each product line has a dedicated sales and marketing organization. At
December 31, 1997, the Company had 129 employees engaged in marketing and sales
and at June 30, 1998 it had 280 employees so engaged. The Company employs
various methods, such as public relations, advertising, and trade shows to build
awareness of its products. Public relations activities are conducted both
internally and through relationships with outside agencies. Major public
relation activities are focused around new product introductions, corporate
partnerships and other events of interest to the market. The Company supplements
its public relations through media advertising programs and attendance at
various trade shows throughout the year, both in the United States and
internationally.
The Company also establishes working relationships with trade analysts,
testing facilities and high visibility corporate and government accounts. Since
the results obtained by these organizations can often
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influence customers' purchase decisions, a positive response from these
organizations regarding the Company's technology is important to product
acceptance and purchase. Other activities include attendance at technology
seminars, preparation of competitive analyses, sales training, publication of
technical and educational articles, maintenance of a Web site and direct mailing
of Company literature. The Company also believes that its participation in
high-profile interactive projects such as Bell South's FTTC project
significantly enhances its reputation and name recognition among existing and
potential customers.
SALES, SUPPORT AND DISTRIBUTION
The Company continually seeks to augment and increase its distribution
channels and sales force to accelerate its growth. Products are sold through the
Company's direct sales force, VARs, systems integrators, distributors,
manufacturer's representatives and OEM customers. The Company's sales and
distribution divisions are organized along five primary lines: direct sales,
OEM, domestic and international distributors, VARs and systems integrators and
manufacturer's representatives; and domestic and international distributors.
Direct Sales. The Company employs a worldwide direct sales force primarily
to sell its products to large OEM accounts and to a lesser extent to end users
of the Fibronics product line. MRV believes that a direct sales force can best
serve large customers by allowing salespeople to develop strong, lasting
relationships which can effectively meet the customers' needs. The direct sales
staff is located across the United States, Europe and Israel. The acquisition of
the Fibronics Business more than doubled the Company's sales force from the
period immediately preceding the acquisition and the Xyplex Acquisition has
increased the total sales force again by over 70% from the period immediately
preceding the acquisition. The largest portion of the increase from the Xyplex
Acquisition was to the Company's domestic sales force which increased over 175%
from the level existing immediately preceding the acquisition.
OEM. Each of the Company's OEM partners resells the products under its own
name. The Company believes that the OEM partnerships enhance its ability to sell
its products in significant quantities to large organizations. Since these OEM
partners provide their own technical and sales support to their customers, the
Company is able to focus on other sales channels. The Company customarily enters
into contracts with OEM customers to establish the terms and conditions of sales
made pursuant to orders from OEMs. These OEMs incorporate the Company's product
into systems or subsystems, which are then sold to end users via various
distribution channels. The Company has established OEM relationships in
connection with its switching equipment with leading communications and
networking companies including Newbridge Networks, Fujitsu and Intel. The
Company's fiber optic components are sold only to OEMs.
Domestic and International Distributors. The Company works with both
domestic and international distributors and has recently begun selling products
through Tech Data. Geographic exclusivity is normally not awarded unless the
distributor has exceptional performance. Distributors must successfully complete
the Company's training programs and provide system installation, technical
support, sales support and follow-on service to local customers. Generally,
distributors have agreements with a one year term subject to automatic renewal
unless otherwise canceled by either party. In certain cases with major
distributors, the agreements are terminable on 30 days' notice. The Company uses
stocking distributors, which purchase the Company's product and stock it in
their warehouse for immediate delivery, and non-stocking distributors, which
purchase the Company's product after the receipt of an order. Internationally,
the Company sells through approximately 80 distributors in Asia, Africa, Europe,
Australia, the Middle East, Canada and Latin America.
Value-Added Resellers and Systems Integrators. MRV uses a select group of
VARs and system integrators in the U.S. which are generally selected for their
ability to offer the Company's products in combination with related products and
services, such as system design, integration and support. Such specialization
allows the Company to penetrate targeted vertical markets such as
telecommunications and cable TV. Generally, the Company uses a two-tier
distribution system to reach a broader range of customers, however VARs may
purchase the product directly from the Company if the volume warrants a direct
relationship.
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Through the Xyplex Acquisition, the Company has added a network of over 300
VARs to its distribution channel. The Company seeks to build dedication and
loyalty from its resellers by offering special programs, the most recent
providing its reseller base of companies dedicated marketing resources and an
exclusive training and support program to help them grow their business.
Manufacturers' Representatives. To supplement the Company's direct sales
efforts, manufacturer's representatives are assigned by territory in the United
States and work exclusively on commission.
Customer Support and Service. The Company is committed to providing strong
technical support to its customers. MRV operates a customer service group, and
provides support through its engineering group, sales staff, distributors, OEMs
and VARs. Customer support personnel are currently located at the Company's
offices in California, Massachusetts, Maryland, Germany, England, Italy and
Israel.
International Sales. International sales accounted for approximately 45%,
53% and 60% of the Company's net revenues in 1995, 1996 and 1997, respectively.
MANUFACTURING
The Company has developed proprietary ASICs to implement high level
component integration in its networking product development and manufacturing
processes. To develop ASICs successfully, the Company must transfer a code of
instructions to a single mask from which low cost duplicates can be made. Each
iteration of a mask involves a substantial up-front cost which can adversely
affect the Company's result of operations and financial condition if errors or
"bugs" occur following multiple duplication of the masks. While the Company has
not experienced material expenses to date as a result of errors discovered in
ASIC masks, because of the complexity of the duplication process and the
difficulty in detecting errors, the Company could suffer a material adverse
effect to its operating results and financial condition if errors in developing
ASICs were to occur in the future. The Company does not have a long-term supply
contract with any ASIC vendor or any other of its limited source vendors,
purchasing all of such components on a purchase order basis under standard terms
of sale. While the Company believes it would be able to obtain alternative
sources of supply for the ASICs or other key components, a change in ASIC or
other key suppliers of key components could require a significant lead time and,
therefore, could result in a delay in product shipments. While the Company has
not experienced delays in the receipt of ASICs or other key components, any
future difficulty in obtaining any of these key components could result in
delays or reductions in product shipments which, in turn, could have material
adverse effect on the Company's business, operating results and financial
condition.
The Company outsources the board-level assembly, test and quality control
of its computer networking products to third party contract manufacturers,
thereby allowing it to react quickly to market demand, to avoid the significant
capital investment required to establish and maintain manufacturing and assembly
facilities and to concentrate its resources on product design and development.
Final assembly, burn-in, final testing and pack-out are performed by the Company
and selected third-party contract manufacturers to maintain quality control. The
Company's manufacturing team is experienced in advanced manufacturing and
testing, in engineering, in ongoing reliability/quality assurance and in
managing third party contract manufacturer's capacity, quality standards and
manufacturing process. Risks associated with the use of independent
manufacturers include unavailability of or delays in obtaining adequate supplies
of products and reduced control of manufacturing quality and production costs.
If the Company's contract manufacturers fail to deliver products in the future
on a timely basis, or at all, it would be extremely difficult for the Company to
obtain adequate supplies of products from other sources on short notice. There
can be no assurance that the Company's third party manufacturers will provide
adequate supplies of quality products on a timely basis, or at all. The Company
could outsource with other vendors; however, such a change in vendors may
require significant time and result in shipment delays and expenses. The
inability to obtain such products on a timely basis, the loss of a particular
vendor or a change in the terms and conditions of the outsourcing would have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company relies almost exclusively on its own production capability for
critical semiconductor lasers and LEDs used in its products. The Company's
optical transmission production process involves (i) a wafer processing facility
for semiconductor laser diode and LED chip manufacturing under stringent and
accurate |
