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

To: Claude Edelson who wrote (7237)	2/24/1998 9:48:00 PM
From: Larry J.	Read Replies (1) \| Respond to of 42804

Claude and thread, here's complete story: MRV Communications Shares Off Sharply, But Analysts See Overreaction. Despite the company's robust fourth quarter and year -end earnings, shares of MRV Communications Inc., which makes fiber-optic components and computer networking devices, fell 17% Tuesday. MRV shares (MRVC) Tuesday fell $5.03125 to $23.9375 on Nasdaq volume of 2.4 million. That is about 5.6 times the average daily volume of 424,800. Analysts said investors were reacting to news that the Chatsworth, Calif., company's inventories and receivables had doubled from year-earlier levels. High inventory levels and large days sales outstanding (DSOs) are typically red-flag warnings about earnings, analyst Vivek Rao of Gruntal & Co. said. For MRV Communications, which Monday posted its 32nd consecutive quarter of earnings and revenue growth, the inventory and DSO escalation caught investors by surprise. All 32 quarters had met or beaten analysts' expectations. MRV Communications Chief Financial Officer Edmund Glazer said he believes the company will meet analysts' estimates for 1998. Wall Street currently pegs the company's 1998 earnings at $1.24 a share, up from 89 cents in 1997. "(MRV) has a long history of reporting terrific numbers," but market watchers get jittery when inventories grow at a higher rate than revenue, said Rao. The company's rebenue rose to $165.5 million in 1997 from $88.8 million in 1996, while inventories rose to $42 million from $18 million during the same period. Accounts receivable escalated to $47 million from $24 million a year ago, Rao added. DSOs rose to 89 days in the fourth quarter, up 12 days from the previous quarter, according to Amar Senan, an analyst at Volpe Brown Whelan & Co. But Rao said he believes the problem is short term and called Tuesday's selloff an overreaction. He noted that the company has a "strong track record" and a reputation for managing growth well. Rao plans to wait and see if the balance-sheet problem persists in the first quarter. Senan of Volpe Brown Whelan concurred, noting that the company gave specific reasons for the inventory and receivables buildup. Glazer, the company's CFO, attributed the inventory buildup to a decline in OEM switching sales, the companys move to shorten its lead time to a few days from three to six weeks and the roll-out of a new product late in the quarter. Glazer said OEM sales were hurt by the departure of two major OEM customers - NN and DEC from the switching business. As a result, OEM switching revenue accounted for only 10% of the company's total revenue, down from 20% the previous quarter. Glazer said the lost sales were offset by stronger international sales. The financial chief noted that efforts to cut the lead time are expected to make the company more competitive in the long run and that temporary buildup was necessary to prepare for a shorter sales cycle. The introduction of a new product late in the fourth quarter also contributed to the inventory glut as few shipments were ready to go before year's end. Glazer predicted that inventory levels will "significantly" decline in the forst quarter, and receivables levels will improve, but not dramatically. The executive explained the receivables increase stems from higher international sales. Traditionally, he said, European sales have longer cycles, typically 180 days, and therefore receivables grow. As the company is changing its sales mix, with more emphasis on international sales and less on OEM networking sales, he said receivables are likely to remain high. International sales accounted for 65% of total revenue in the latest quarter, up from 58% in the third quarter. The company has little exposure to turbulent Southeast Asia. Glazer added the company's recent decision to acquire Xyplex Networks will allow it to enter the wide-area-network and remote-access-server markets, a move expected to boost sales. Despite the inventory and receivables issue, Volpe's Senan reiterated his strong buy rating and boosted his revenue projections for MRV Communications to $260 million from $251 million in 1998. Gruntal's Rao speculated Tuesday's selloff was a combination of profit-taking and nervous short-term investors "who shoot first and ask questions later." He added that they often sell a stock and then buy it back a month later. (eom) I bought first today (26 1/8 & 24 3/16) and asked questions later, and am glad I did after this analysis. Larry