Random Thoughts On CC of 2/16/99
l. Q4 had a huge 55% increase in revenue from l997 Q4: from 48 million to 74 million. This was the result of special circumstances such as delayed orders from Q3, aggressive pricing of obsolescent product etc. For Q1 they are anticipating revenue in the area of 64-65 million.
2. Only 43.6% of revenue was domestic versus 56.4% foreign. While it was not commented on, this is a significant change from what the company had anticipated in September '98 when they said a majority of revenue was expected to be domestic.
3. Gross margins on networking products was in the low 30's - down from the mid 40's that MRVC had become accustomed to. They said the company had achieved "some stability" in this area although they do not expect significant improvement in Q1 or Q2 and do not expect to get back to historic norms (low to mid 40's until year end. Networking products constituted 80.8% of sales.
4. "Lightweight Components" constitute the fastest growing part of the company with 19.2% of sales. It was said that they experienced heavy demand for these products this quarter but were proud that they were able to meet most it. Not in the CC, but I saw it in one of the news releases that they experienced unusually high marginal costs in meeting this demand and one of their l999 focuses will be to improve manufacturing efficiencies. They are completing a second foundry in Chatsworth. Noam dclared that MRVC "may be" the most vertically integrated networking company in the world. Far from being too much of a stretch for a company its size, Noam said this vertical integration is one of MRVC's greatest strengths: it gives it a good handle on optical costs and gives the company the opportunity to bring margins up. Contrary to what Roktor said, the margins on these optical products came down from the high 40's to the low 40's, based he said not so much on specific competitors but from customers who come to MRVC with much larger orders and demands for price concessions.
4. The company took a 3.1 million write off for obsolescent low end product, but ended Q4 with lower inventory than Q3. The % of Q4 revenue derived from products that are now discontinued was 6-7%.
5. New Products: (a) The fiberdriver line contibuted $2 million in revenue this past Q. (b) The wireless fiber driver which won a best of show award recently. (c) A GB LAN driver which will ship in June- July. (d) An "AccelerRouter" which is compatible with CISCO products which provides a low cost way of improving the performance of existing routers by 10-20 times will ship in this Q. (e) A series 8000 switch router will exhibit in May. (f) The DDWM, a new axis product will begin a pilot program this summer. (g) The terabit router will begin deliveries year end. As to several of these products Noam refused to name customers citing non-disclosure agreements with said customers. The MRVC sales force has been divided between carrier and non-carrier sales. Noam said that MRVC had on-going business with a number of carriers he declined to name.
6. The company has built a new laboratory in Littleton, MA to validate new products. MRVC's head count in R&D is now 190 with 325 in marketing and sales.
7. The company's investment in the 3 independent companies (Kempton communications in Europe, NewAxis in Santa Barbara, and Charlotte's Web in Israel) totals under $3million. MRVC now has majority ownership, or the option to acquire same, in all 3 companies. Renenue and R&D spending within these companies either is - or will be- consloidated with the company's bookkkeeping.
WHAT DOES ALL THIS MEAN IN TERMS OF TOMORROW IN THE MARKET?
I have absolutely no opinion. On the one hand, if investors focus on earnings, or lack of same, in the next 6 months, then the stock will fall. On the other hand, the notion that MRVC is a wreck of a company with no future has been utterly put to rest. For myself, I am convinced beyond all reasonable doubt that the company is vibrant and exciting, with incredible new products with immense potential.
Bruce
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