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

To: VivB who wrote (11095)	10/30/1998 2:28:00 PM
From: Greg h2o	Respond to of 42804

BEST report 10/30/98 MRVC: Lowering Estimates; Maintaining Attractive Rating For Long-Term Investors Bear Stearns & Co. Inc. Bob Lam October 30, 1998 Bob Lam, CFA (212) 272-7670 10/30/98 blam@bear.com Subject: Analysis of Sales/Earnings Industry: Data Networking BEAR, STEARNS & CO. INC. EQUITY RESEARCH MRV Communications (MRVC - 7 «) - Attractive Q3 Below Expectations; Lowering Estimates; Maintaining Attractive Rating For Long-Term Investors ----------------------------------------------------------------- *We are significantly trimming our Q4 and 1999 estimates on MRVC after the company reported a worse than expected Q3. Visibility remains very low and we elect to take a conservative approach and are now projecting an EPS of $0.30 for 1999, down from $0.90 and is below the company's guidance of $0.35-$0.45, due to our lack of visibility into forward estimates. At this point, we think forward estimates are less important and the actual results could be better or worse than what we are publishing. While there appears to be no upside to the stock in the near term, we are maintaining our Attractive rating for very long-term investors as we believe the stock is likely to settle at its book value of around $6 after the market absorbs the disappointing news and could rebound should management execute and deliver solid results beginning in mid-1999. MRV reported Q3 EPS of $0.06 vs. $0.23, well below our estimate of $0.12 (revised on 8/27), due to very aggressive pricing actions instituted by the company at the end of the quarter. The company reported revenues of $62.6 million, exceeding our revised forecast of $57 million, which led us believe the company did not lose significant market share in the quarter. As a result of aggressive pricing actions, gross margin came in worse than expected at 38.8%, down from 44.1% in Q2, and was below our estimate of 41.5%. Operating expenses came in higher than expected at 35.9%, compared to our estimate of 33.9%, due to higher than expected selling & marketing expenses as the company moved aggressively to retain market share. Geographically, U.S. accounted for 41.5% of revenues, while international accounted for 58.5%, with weakness in Europe and Asia. Meanwhile, networking products accounted for 81% of revenues, while fiber optics components represented 19% of business in Q3. Both total cash position ($56 million) and DSO (at 84 days) were flat from Q2, while inventory turns decreased to 3.1 from 3.3. Due to product delays, product flow is unlikely to match the company's very good track record. In Q4, the company will be shipping a new line of Ethernet, Fast Ethernet, and Gigabit Ethernet switches, and in Q1 and Q2 of next year, the company will be shipping a very high-capacity, Layer 3 routing switch, now code-named 8000 series, which could provide a catalyst for the company's turnaround. **We are projecting a Q4 loss of ($0.05), down from a profit of $0.15. We are also lowering our 1999 EPS estimate to $0.30, from $0.90. We believe the stock will be under pressure tomorrow and could be attractive to long-term investors. ----------------------------------------------------------------- MARKET CAPITALIZATION: $ 205 million SHARE COUNT: 27.4 million shares EARNINGS Q1 Q2 Q3 Q4 Mar Jun Sep Dec Year P/E Current 1997 $0.19A $0.21A $0.23A $0.25A $0.88A 8.5x Current 1998 $0.26A $0.31A $0.06A $(0.05)E $0.59E 12.7x Previous 1998 $0.26A $0.31A $0.12E $0.15E $0.85E 8.8x Current 1999 $0.02E $0.05E $0.09 $0.14E $0.30E 25.0x Previous 1999 $0.90E 8.3x ----------------------------------------------------------------- _______________________________ Within the past three years, Bear, Stearns & Co. Inc. or one of its affiliates was the manager (co-manager) of a public offering of securities of this company and/or has performed other banking services for which it has received a fee. Bear, Stearns & Co. Inc. is a market maker in the security of this company and may have a long or short position in the security.

To: VivB who wrote (11095)	10/30/1998 3:13:00 PM
From: mph	Read Replies (1) \| Respond to of 42804

I somehow have this image of Sector being escorted out of the meeting having asked far too many piercing questions........, with his untaped laptop cord trailing behind him....<g> mph

To: VivB who wrote (11095)	10/30/1998 4:27:00 PM
From: Sector Investor	Read Replies (1) \| Respond to of 42804

<<Hey Sector, did someone bump you off the line? It's been almost 3 hours since you reported that you'd signed into the meeting and garnered the one phone line. Anticipation mounts for your report. >> Nope. It's just that the meeting was short and fast moving. It was hard to hear from the back, so I abandoned the reporting plan and moved up where I could see and hear better. The meeting was followed by a tour of the facilities. I will post some comments later tonight.