MRV Communications (MRVC) opinions? Message Board

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Technology Stocks : MRV Communications (MRVC) opinions?

MRVC 9.975

-0.1%

Aug 15 5:00 PM EST

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To: rascalbythesea who wrote (12673)	4/11/1999 12:42:00 AM
From: Sector Investor	Read Replies (1) of 42804

<< I am the one who made the big mistake by having faith in what Noam & co. did with the company for 34 quarters, I still can't believe that was just a freak situation.>> No, it wasn't. I think I demonstrated that with a spreadsheet I posted several times. This is normal (though aggressive) growth through acquisition. The change of EPS pattern comes mainly from a corporate decision to grow their R&D and SG&A significantly faster (double 1997) than their revenue growth. We know many of the reasons for this 1) Increased development due to Missed product cycle 2) Acquisition of startups written off to R&D 3) Increase of Sales and Marketing staffs 4) Capital and other expenses related to their foundry to significantly increase their production capacity 5) Expenses for their PISTOL lab 6) Infrastructure staffing increases due to growth from a small company structure to a large company structure (Noam mentioned this several times) We know the drop in Gross Margins hurt, but it is this INTENTIONAL massive increase in R&D and SG&A that hurt the most. They increased these numbers over $8 million ($25.45 million vs $17.40 million) just since Q2. The payoffs are just starting to show up, and some, like the $950,000 investment in New Access for 19% ownership won't show up for a while. I did something interesting. I recalculated Q4 earnings - every line item exactly as reported, except I kept R&D and SG&A the same as Q2. They then have a pre-tax net income of over $10 million instead of the $2 million they reported. They did something strange with income taxes in Q4 too. They recorded $4.665 million, which exceeded their pre-tax net income of just over $2 million. This had to have been an adjustment due to the restatements they also did in Q4. I calculated this adjustment to be just over $4 million. For taxes I used 31% which came to $3.15 million, then ADDED $4 million to the number to simulate their adjustment. Before the extraordinary gain on bonds, they still end up with $0.11 basic and $0.10 diluted. After the extraordinary gain they get $0.22 basic and $0.19 diluted. I can post the entire calculation if anyone is interested. I think this shows adequately that they are making a big voluntary bet on their future, which won't show up fully in the bottom line until next year.

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