Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : MRV Communications (MRVC) opinions? -- Ignore unavailable to you. Want to Upgrade?

To: whitephosphorus who wrote (16751)	11/10/1999 12:44:00 PM
From: cmg	Read Replies (1) \| Respond to of 42804

10:47am EDT 26-Oct-99 First Security Van Kasper (Chet White (310) 443-3406) MRV MRVC: Quarterly Update; Rated Strong Buy [KF · Rcvd: Oct 26, 11:00 AM EDT ] OCTOBER 26, 1999 MRV COMMUNICATIONS, INC. (MRVC - $22 1/16) Quarterly Update; Rated Strong Buy. EPS REVENUES (MM) Fiscal Year: 99/98 00/99 00/99 December 1998A 1999E Change 2000E Change 1999E 2000E Change Q1 $0.25 $(0.03)A NM $0.03 NM Q1 $70.1A $79.7 14% Q2 $0.30 $0.02A NM $0.05 NM Q2 $73.3A $85.3 16% Q3 $0.05 $0.02A NM $0.07 NM Q3 $71.3A $87.9 23% Q4 $(0.09) $0.02 NM $0.12 NM Q4 $75.9 $97.6 29% Year $0.53 $0.03 NM $0.26 NM Year $290.5 350.5 21% P/E 41x NM 85x Mkt Cap/Revs 2.3x 1.9x 52-Week Range: $26 1/4 - 5 1/2 Rating: Strong Buy Market Cap. (MM): 663.6 Price Target: $40 Shares Out. (MM): 30.08 Book Value/Share: $5.80 Estimated Float (MM): 21.85 Current Year ROE: (-1%) Est. Insider Holdings: 8% Debt to Total Cap. (9/99): 51% Est. Institutional Holdings: 24% Gross Margin (FY99): 36% 10-Day Average Volume: 304,190 Next EPS Report: TBA Investment Conclusion: Given MRV Communications' strong fiber optic performance, new strategic partners, progress on high-end networking product development and the many near-term catalysts, we expect to see increasing investors' confidence in MRV Communications' ability to deliver higher revenue and margins over the next several months. We are reiterating our Strong Buy rating on MRV Communications, Inc. (MRVC). Our 12- to 18-month price target of $40 (+82%), is based on 3x FY 2000 sales of $350 million. MRVC reports Q3 results in-line with expectations. MRVC reported EPS for the third quarter of $0.02 compared to our estimate of $0.01 and consensus estimates of $0.02. As expected, seasonally weak European demand for MRVC's networking products produced sequentially lower revenues from its networking division of $53.8 million versus $57.5 (-6%) and moderate year-over-year growth of +6%. MRVC's optical components division, Optical Access, continued its strong growth pattern, reporting revenue of $17.5 million, up +11% sequentially and +48% year-over-year. Gross margins also continued to improve from 35% in Q2 to 37% as the Company's revenue mix shifted towards higher margin optical business from 21.5% in Q2 to 24.5% this quarter. Going forward we expect gross margins to show further improvement as the Company's optical components division becomes a larger percentage of sales and as MRVC begins to achieve sell-through of its higher-margin (50%+) networking products (Red-C solution, Linux switch router, Zuma enterprise switch router, Opti-switch family). MRVC delivers strategic partners, beta sites and new management for its next generation networking solutions. This quarter, MRVC began the first of several steps in executing its strategy of maximizing shareholder value through building pureplays focused on the highest growth segments of the networking market. ú New Access Subsidiary: During the conference call, management confirmed that both Juniper Networks (NASDAQ -JNPR) and Kleiner Perkins Caufield and Byers participated in a second round of financing for New Access. Additionally, the company strengthened New Access' management with the addition of Juniper's CTO officer, Pradeep Sindhu. Management estimates that New Access' fiber optic networking solution is expected to be significantly more powerful than both Cerent and Sycamore Networks (NASDAQ- SCMR) solutions. Although management has offered limited disclosure regarding the more powerful direction of New Access, based on the track record of its new partners, success is highly probable. ú Zuma Subsidiary: At the Atlanta Interop, MRVC introduced a new subsidiary, Zuma. Zuma is currently in alpha with an enterprise switch router that has the potential to offer more power, survivability and scalability than those of its peers Foundry Networks (NASDAQ - FDRY) and Extreme Networks (NASDAQ - EXTR). Zuma's Z16 "supercomputer" is expected to beta in Q1 2000 and ship by Q2 2000. Our discussions with FDRY networks product development indicate that Zuma could be a contender in this space. Additionally, the Company is making progress with several other major projects: ú The Company's Red-C subscriber management solution recently went into beta with 2nd Century Communications, a CLEC in Boca Raton, Florida. We expect this solution to begin to roll out into multiple betas within the next 30 days and start to ramp by year-end. ú MRVC's Charlottes Web subsidiary is currently looking for a beta site putting them slightly ahead of schedule with its terabit router, the Aranea. ú With the Co-founder, Zev Ravnoy's recent departure, MRVC's management is aggressively pursuing a President and CEO for the Optical Access subsidiary in preparation for an IPO. ú In an effort to take advantage of customer and developers demand for the openness of Linux, MRVC is planning to begin a free distribution of up to 100 units of its Linux software and hardware in the next two weeks throughout the university systems and more aggressive service providers. ú Charlottes Web and Hyperchannel.com are also expected to close on second round financing from strategic investors in near-term. ú Optical Access is maximizing the investment used to double the capacity of its Chatsworth fiber optics fabrication facility and to increase in headcount by 25%. Management noted that it is achieving great success with some of its innovative Fiber to the Curb and Fiber to the desktop solutions (OC48/192 Transceivers, Fiber Driver, Optiswitch family, Single FTTC Triplexer) and believes that there is major upside potential to achieve revenue growth well beyond the 40% level reflected in our model. Reiterate our Strong Buy Rating: Given MRVC's strong fiber optic performance, new strategic partners, progress on high-end networking product development and the many near-term catalysts, we expect to see increasing investors' confidence in MRVC's ability to deliver higher revenue and margins over the next several months. We are reiterating our Strong Buy rating on MRV Communications, Inc. Our 12- to 18-month price target of $40 (+82%), is based on 3x FY 2000 sales of $350 million. Other Public Companies mentioned in this report include: Extreme Networks (NASDAQ: EXTR $79 1/4 , Not Rated) Juniper Networks (NASDAQ: JNPR $257 _, Not Rated) Foundry Networks (NASDAQ: FDRY $171 , Not Rated) Sycamore Networks (NASDAQ: SCMR $177 1/16, Not Rated)