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: Cymeed who wrote (6578)	12/21/1997 1:09:00 AM
From: WBendus	Read Replies (1) \| Respond to of 42804

Cymeed, Here are some of my explanations to your questions, others will with out doubt have answers which differ from mine. 1). What are the reasons of its recent drop since October ? Correction ? Warnings from peer group (COMS, BAY, etc) ? Impact of more shares issued ? Or if there is something more fundamentally alarming ? I think the brunt of the drop comes as overall weakness in the networking industry. There are many could be answers to this question, but I think you have eluded to the primary concerns, warnings from "peers." There could be some impact from the newly issued shares, but without know whose hands those shares fell into (institutional or individual), it is hard to make that correlation. I think it could be successfully argued that there may be some underlying fundamental concern in relation to the stocks share price demise. It seems that there is a strong effort underway for those companies that provide networking solutions, to provide "end-to-end" solutions and MRVC is not building itself to be this type of company. The company primarily builds networking switches and components for use in the LAN environment, with its latest products geared around gigEther technologies. This is a narrow focus for a company to take in this industry and it is also an area in which there is much competition that is expected to start coming on-line within the next several months. In defense of the company, they have been at the leading edge of devoping and bring to market gigEther technology. The management is extremely hard-working and apparently competent, given their success thus far. They also have extremely compeling financial ratios in comparison with industry averages. Trialing PE 32 vs. 38 for industry Pr/Sales 3.6 vs. 5.8 for industry Pr/Book 3.3 vs. 8.4 for industry Pr/Cashflw 28.5 vs. 51.9 for industry Dbt/Eqty .01 vs. .32 for industry Quick Ratio 3.54 vs. 2.34 for industry Curr. Ratio 4.72 vs. 2.98 for industry ROE 20.8% vs. 23.9% for industry ROA 14.3% vs. 17.16 for industry PM 11.6% vs. 12.78 for industry Insiders hold about 19.8% Institutions hold about 47.7% 2). Their sequential growth rate on a quarter to quarter basis seems slowing down, is this a factor in the share price ? What kind of revenue growth are we expecting in Q4 97 and year 98 ? Slowing growth can always have a detrimental effect on a companies stock price but to some extent this can be moderated by understanding that trees do not growth to the sky. The mean five year outlook on growth from the analysts following the stock is about 40%. Q4 estimates are at .24, which indicates about 4.3% sequential growth in EPS and F98 EPS projections are for 1.24. In the September quarter the company managed to beat estimates by a penny. There are at least four analysts which are following the stock and three have it rated strong buy and one monderate buy. 3). What make MRVC customers to buy from MRVC, instead of CSCO ? Good question. The company does sell a lot of its goods to companies which then incorporate the goods into their own propritory products, mainly NIC's, connectors, diodes and I believe some switching products. The company's main competition has actually been Xylan through the past but now seems to be those companies which have recently acquired gigEther technology, such as BAY and CSCO along with some privately held newcomers. The company has built some alliances along the way, namely INTC, and may be able to sustain itself on this basis and by pursuing more of the same. They are going to need to find the next up and coming technology, embrace it, support it with the best products and/or service and hope for the best in order to continue. I personally think that there is a real compelling case to owning networking stocks which are pursing the end-to-end solution for their customers. It also appears that the markets, at this point, are agreeing with me. I personally like MRVC but can't say that, at least at this point, any of my money is invested in the stock. Hope this helps. Wayde.

To: Cymeed who wrote (6578)	12/21/1997 2:18:00 AM
From: Dan Ross	Respond to of 42804

For the most part I agree with Wayde.. 3). What make MRVC customers to buy from MRVC, instead of CSCO ? My belief here is one of competitive strategy....There are 4 generic strategies that a company can choose to go after.....They are a function, however, of lower cost and differentiation. The lower cost is the ability of a company or a business unit to design, produce, and makret a comparable product more efficiently than its competitors... Differentiation is the ability to provide uniqe and superior value to the buyer in terms of product quality, special features, or after-sale service..... They 4 generic competitive strategies are: 1.) Cost leadership - Ie. Broad audience & low cost producer 2.) Differentiation - Ie. Broad audience - creation of a product or service that its industry perceives as unique...hopefully they can charge a premium for its product via differentiation. 3.) Cost Focus - Ie low-cost strategy focusing on a particular buyer group or geographic market and attempts to serve only this niche, to the exclusion of others. (this normally requires a tradeoff between mkt share and profitability. 4.) Focused differentiation - Ie. concentrating on a particular buyewr group, product line segment, or geographical market. This normally is related to a business unit focussing its efforts to better serve the special needs of a narrow strategic target more effectively than its competitors.... According to Michael Porter, a well known Harvard strategist, if the company doesn't achieve one of the 4 generic competitive strategies than it is doomed to below average performance... So why am I typing this????? I feel that MRVC has shifted into a cost focus type of strategy whereas CSCO is in the differentiation strategy......Putting the 2 companies in a portfolio, IMO, minimizes the downside exposure to one's portfolio......However, CSCO currently trades at a premium to the networking industry as a whole....NOT GOOD IMO.....I want some kind of value.....As Wayde shows, MRVC is a GREAT VALUE PLAY in networking currently......the company's executives seem to think strategically IMO...This is based on their acquisitions from the past, moves taken into retail, etc....... BOTTOM LINE....I AM VERY BULLISH ON MRVC, especially at these levels.... Growth in EPS has slowed......probably 40-45% growth in EPS per annum from here on ...... you can't grow at 100% forever.....Still a great company selling at ridiculously low levels based on growth prospects..... Hope this helped Dan Ross

To: Cymeed who wrote (6578)	12/21/1997 11:48:00 AM
From: Sector Investor	Read Replies (1) \| Respond to of 42804

<<1). What are the reasons of its recent drop since October ? Correction ? Warnings from peer group (COMS, BAY, etc) ? Impact of more shares issued ? Or if there is something more fundamentally alarming ?>> Cymeed, I just checked in from a busy weekend and see your post here. I see a couple of people have answered you, but I will as well. IMO the recent drop comes from three main factors 1) A general PERCEPTION of a networking slowdown. I say perception because the market has trouble in distinguishing one networker from another. CSCO's growth slowed this year, ASND tanked primarily to 56K modem problems and software problems with their leading product (now resolved), followed by a lack of confidence in mgt and their projections. COMS was also hurt by 56K, competition from all sides, overpaying for USRX, etc. 2) The Asia thing. Everyone is uncertain as to who will be affected and by how much. Not knowing these answers, most techs have been taken down. COMS for one will be hit severely, IMO as their consumer modem sales are tied to PC sales, which may drop drastically in Asia for a period of time. Networking Companies like MRVC and ASND and CSCO don't sell to consumers. But even they sell to different customers. ASND's customers are primarily ISPs and Telcos, with a growing enterprise presence. CSCO sells mainly to enterprises and is the king in routers, and is trying to break into Telco/ISP, but their WAN products are still midrange density at best, so ASND still has and will continue to have the upper hand there. MRVC sells FE (fast Ethernet) and GE (Gigabit Ethernet) and IP switch products to enterprises and has one of the broadest product lines, and because their costs are about the lowest and their ASIC density among the highest, they are positioned at the low end pricing point where they can continue to do excellently. They will do even better when they add more interfaces and supported protocols to their products, as they are now doing. MRVC has a 6 month to 1 year lead over the majors at present. CSCO has had trouble getting their GE products out the door (now mid 1998) and they will have a much higher price point. MRVC will do excellently for the next several years here, IMO. I have neglected to mention MRVC's fiber optic products here, which also have a bright future. 3) The third reason MRVC is down, IMO is that they ONLY exceeded Q3 by a penny. The market had higher expectations, and even though earnings were strong (30th consecutive growth quarter), it was not enough for the street. MRVC's Q3 is usually about their weakest quarter, so I think they still did well. <<2). Their sequential growth rate on a quarter to quarter basis seems slowing down, is this a factor in the share price ? What kind of revenue growth are we expecting in Q4 97 and year 98 ? I for one think that they can return to close to their old growth levels iin 1998. They have a strong product line, high in density and low in price, with broadening interfaces. They are using the money they received to double their sales staff and focus more domestically. I think this will pay off handsomely in 1998. I will continue with your other points in a later post. Have to go.

To: Cymeed who wrote (6578)	12/21/1997 4:51:00 PM
From: Sector Investor	Read Replies (2) \| Respond to of 42804

<<3). What make MRVC customers to buy from MRVC, instead of CSCO ?>> This post was conspired against by the gods of the Internet as twice, my 56K modem lost carrier when I was within the last three sentences. Therefore, it must either be meaningless or exceptionally good <VBG> CSCO is very big in the ENTERPRISE LAN environment - the largest corporations that have the largest and most complex networks. There the interface and connectivity demands and the vendor loyalty aspect (mgt tends to stay with their preferred vendors) override the price consideration, and CSCO will continue to do well - at CSCO's higher prices. CSCO however, has a much higher cost structure than MRVC and this market is not growing as explosively as the WAN Telco/ISP market is currently. However, there are many many companys in the world that are smaller, or have simpler networks and where price IS an important consideration. Here MRVC's products will continue to be extremely attractive. Remember that the FE/GE market is projected to grow from 70M in 1997 to $2.9B by 2000. This is a HUGE new market and MRVC will IMO actually increase it's percentage at the low end as the market grows larger. Two final points MRVC also has a thriving fiber optic product business that is growing rapidly in it's own right, although overshadowed by the Networking Division. Currently this is 25% of revenue. The points are that as you look further into the future, fiber products will only grow more and more in demand, and that MRVC's fiber capability will actually KEEP MRVC's networking products at the highest performance, highest density and lowest production cost as time goes on. Having this combination of high performance and high density network products, a thriving fiber optic capability and an extremely low cost structure is something other networkers can only dream about. Finally the end-to-end vs niche issue. MRVC can continue to do exceptionally well in it's niche role, IMO for the forseeable future, but I think that it is extremely attractive to many companys, and therefore MRVC will highly likely be doing it's niche function within the product line of a larger company within two years. MRVC's future is bright whether it stays independent or gets bought out at a high price. From an investment perspective, I think MRVC will hit $50+ sometime in 1998 and if they stay independent, they can hit $100 by the millenium (2001). There are few public companies that have a shot at quadrupling their stock price in three years, but IMO MRVC is one of them - actually from it's low last week this is only $84, a clearly achievable goal, IMO.