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

To: signist who wrote (6825)	1/21/1998 11:19:00 PM
From: Sector Investor	Read Replies (1) \| Respond to of 42804

Synopsis of Bear Stearns report - this is truly exciting! MRVC: Acquisition of Xyplex Enhances total networking offerings 08:46am EST 21-Jan-98 Bear Stearns (Blachno/Lam 272-4227) MRVC BEST says that they view MRV's acquisition of Xyplex positively because they think the acquisition allows MRV to benefit from the "tremendous growth opportunities in the wide-area network access market" which they estimate at 30%-plus CAGR over the next several years. BEST expects the transaction to close within the next 30-60 days and to be neutral to MRV in 1998 and accretive in 1999. BEST says that there will be one-time undetermined charge, associated with the acquisition. BEST says that according to IDC, Xyplex had 9.2% market share in the fixed port remote access server segment (low-end), 2.4% share in the remote access concentrator segment (high-end), and 3.5% share in the overall remote access market in the first half of 1997. BEST estimates that Xyplex had approximately $70 million revenues of in 1997, but "the current annualized revenue run-rate has dropped to around $40 million as a result of declining revenues", which they believe was execution-related. BEST thinks that following the removal of sales duplication, MRV could count on an annualized revenue run rate of about $30 million. Here are BEST's reasons. 1) Broadened Product Line and Entry Into WAN Access Market. BEST believes that Xyplex has good remote access and routing software products, which complement MRV's existing products (switching and fiber optics) to offer total networking solutions to both enterprise and service provider customers. BEST adds that they believe Xyplex is currently developing a next- generation high-end remote access concentrator, which could allow MRV to benefit from the growth in that lucrative market segment. and they also believe that the combined operation could enjoy significant "cross-selling opportunities" after the merger closes. 2) Engineering, and Sales and Marketing Talent. BEST thinks that MRV is acquiring a pool of good engineering talent particularly in remote access and routing from Xyplex, which has 90 engineers out of 325 employees. BEST adds that MRV will gain more than 100 sales and support employees from the acquisition. who they feel under the new leadership which focuses solely on networking and communications, the team should perform more effectively than in the past. 3) Potential for Gross Margin Expansion. BEST says that Xyplex has an attractive gross margin of approximately 55%, which is well above MRV's corporate gross margin of 43.3% in the latest quarter. 4) Enhanced Indirect Distribution. BEST says that Xyplex enhances MRV's distribution capabilities by bringing MRV channel relationships with more than 300 Value-Added Resellers (VARs). 5) Credible Product Offerings for ISPs. The remote access product offerings from Xyplex position well in the small to mid- size Internet Service Provider (ISP) markets, which should strength MRV's total solution offerings to ISPs along with its Gigabit Ethernet backbone switch and fiber optics products. 6) Apparently Attractive Deal Terms. The terms of the deal (at $35 million in cash and out-of-money warrants) appear quite attractive to MRV. BEST says that compared to Lucent's purchase of Livingston (comparable to Xyplex in terms of market share in remote access) for $650 million last October, MRV is gaining exposure to the remote access market at apparently more appealing terms. [Now that is a real understatement!] BEST sees challenges - MRV will need to turn around Xyplex's operation, which has experienced a significant decline in its market position over the past couple years. BEST comments that MRV was quite successful in turning around Fibronics as well as a few previous acquisitions, and BEST thinks MRVC's management should have the experience and skills necessary to integrate Xyplex's products into its existing offerings, and turn the operation around. BEST says that MRV's management will host a conference call on 1/21 at 3:00pm EST to discuss the transaction. BEST also comments that MRV should be announcing its Q4 and FY 1997 financial results during second week of February. They are comfortable with their estimates of $0.24 on $47.5 million revenues and they expect MRVC to report strength in Europe (40% of revenues) with as much as a 20% sequential increase in bookings in the region.