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: Greg h2o who wrote (19174)	2/23/2000 10:36:00 AM
From: cmg	Read Replies (1) \| Respond to of 42804

After the close yesterday, MRV Communications Inc.(Nasdaq: MRVC)announced it had met analysts' estimates of $0.02-a-share in earnings for its fourth quarter (prior to a one-time write-off related to the exiting of its LAN switching business). The company also announced it would pay $263 million to acquire Fiber Optic Communications Inc (FOCI). FOCI will be merged with MRV's Optical Access division (OA) prior to OA's contemplated IPO. That move, along with its announcement to end its enterprise LAN switching business, indicates clearly that MRV intends to concentrate on optical technology and internet infrastructure. Such unexciting commodity products as stackable switches no longer have a place in the new MRV. How quickly the tables can turn. For years, N-base, MRV's networking business, was believed by many to hold the most promise, while Optical Access seemed like the sleepy division plugging along in the background. Today combined with FOCI, OA will be one of the top five optical components and module manufacturers in the world and will reportedly be the only company other than JDS-Uniphase to combine active and passive technologies. Optical Access manufactures fiber-optic components: high-performance laser diodes, ELEDs, detectors, transmitters, receivers and transceivers. These components, long considered the mundane nuts and bolts of the optics business, are now being recognized as the indispensable and critical building blocks of the coming optical revolution in telecommunications and data networking. OA supplies OEM's in the data communications, telecom, CATV, PCS/cellular and fiber-optic test equipment marketplaces. Customers for long range optics include established venders such as Cisco, Nortel, and Alcatel, as well as emerging venders such as Extreme Networks and Foundry. Optical Access is also supplying product for fiber to the curb (FTTC) solutions to Marconi North America. It certainly appears that MRV's management recognized the direction of the market far before the optical components market heated up. In an effort to unlock shareholder value the decision was made in early 1999 to organize the business into a separate division and, if conditions were ripe, to spin it off entirely or otherwise realize value in it. While few saw it then, in hindsight, the timing could not have been better. In the later half of 1999, optical components suddenly became fashionable and the market rush was on. Corning bought Oak Industries, Inc. for $1.8 billion, while JDS-Uniphase agreed to acquire Optical Coating Laboratory, Inc. in a $2.8 billion deal. Although Ortel (Nasdaq: ORTL) had been in the business for many years, they too were caught in this tornado. In the last six months of 1999, Ortel's market valuation increased more than tenfold. Today Ortel is valued at nearly $2 billion. While a market valuation of more than $1 billion for Ortel seemed excessive to some last fall (considering that their third-quarter revenues in 1999 were only $19.4 million), no one was prepared for Finisar's IPO (Nasdaq: FNSR). On the first day of trading in November its stock leaped 357.2 % (Today Finisar has a market value in excess of $5 Billion). Finisar's third quarter 1999 revenues were only $16M, which interestingly is slightly less than what OA brought home in that time period. To put this in perspective, at around $90 per share, MRV's total market valuation is only about $2.5 billion. OA is 100% owned by MRV and is only one piece of the company. What makes the OA story particularly compelling for MRV shareholders is that if all goes according to plan, sometime within the next 12 months, OA itself will debut on Wall Street as yet another extravagantly valued fiber-optic IPO taking it's rightful place alongside the likes of Finisar and Ortel. As a special bonus, MRV hopes to make the day of OA's IPO special for current MRV shareholders by giving them a piece of the new company directly (and tax-free). Reportedly a top-tier banker has been hired to explore alternatives as to how such an arrangement could be structured. If all goes according to plan, when the fireworks of OA's IPO start, MRV shareholders will have box seats in the exclusive section reserved for venture capitalists, courtesy of MRV's management. It should be mentioned that the seven pieces of MRV we discussed in Part 1 of this series have now been doubled. The new organizational chart on the new MRV site, updated Tuesday, gives some clues as to how the pieces will fit together. Nbase-Xyplex will apparently be divided into the Red-Sea Xyplex division and the Optiswitch Linux division. One new optical start-up and one new optical spin-off are slated for announcement at a later date, but these changes only bring the total to ten. MRV clearly has some additional plans, but in yesterday's conference call management made it clear that they are not going to announce more details until they feel the time is right.

To: Greg h2o who wrote (19174)	2/23/2000 10:39:00 AM
From: delmarbill	Read Replies (1) \| Respond to of 42804

New Expectations. When people have the time I would appreciate you looking over the following. I'm trying to create a document that keeps my expectations in line with those created by the conference call. If I've missed any thing, please let me know. CC announcements (A) vs old expectations (E) vs new expectations (N) Spin-Offs Optical Access- A- FOCI acquisition integrates active and passive components to address the demand for "rich features and functionality". JDSU is the only other company that has done this (between the lines - and look at their market cap!!). No growth in OA revenue. We will be happy with CEO choice. E- Blow-out revenues from OA and CEO announcement. [MRV did not meet expectations in these areas. Whether it exceeded overall expectations with FOCI aquisition - too early to tell. Big question- Can MRV execute? ] N- MRV now positioned to meet the 5X growth predicted to occur over the next three years. CEO announcement VERY soon - must be in position to take new OA entity public. IPO WILL happen after the merger (close 2Q) but definitely this year. Nbase-Xyplex, Linux/Optiswitch Divisions A- positioned for multilayer traffic management: Layer 1 - Fiber Driver, Layer 2- Optiswitch, and Layer 3 and above- OSR 8000 Linux Router. Ditched LAN products- Nbase is out, Red Sea is in. Now two potential spin offs. Red C in trials with 2 customers , booked order with a third, beat out RedBack (implied RedC is better for certain but not all applications) Won project with European carrier. Impressive Caspian Sea 1500 km project (only $2 million?). E- Revenue from above products [sort of met this expectation??] N- Announcement regarding customers for Red C and Linux router (European carrier). New announcements pertaining to Linux at CeBIT. More info on Caspian Sea project. Optiswitch router w/ built in DWDM cabability announcement in "next few months". Start-Ups New Access- A- received encouraging reactions from customers E- revenue, status of Metrofusion [did not meet expectation ?] N- "compelling value proposition" will pay off Charlottes Web- A- they are engaging customers (is this better than receiving encouraging reactions?), Araena 1 is currently in validation, customer trials to begin before midyear. Main application for router "likely to be high density traffic aggregation for carriers" E- Terabit Router already in customer trials [did not meet expectations]; seems to be a difference of opinion here, Noam says on track, analyst implies 6 months behind?? N- Will be in customer trails first half and will take public ASAP. More info on "more features" that Noam wasn't willing to disclose - something that will bridge the gap between circuit based and optical based networks. MPLS 2 by July. Zuma Networks A- product is in validation, engaging potential users and Strategic Partners, new facility and new web site E- Zuma graduates to Start-Up status [met expectations] N- Strategic Partner Announcement Hyporium A- "building their European presence", completed $24 million round of funding E- revenue and status of IPO [ nothing new but status quo is good in this case] N- nothing new, IPO expected this year