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

To: rascalbythesea who wrote (12673)	4/11/1999 12:42:00 AM
From: Sector Investor	Read Replies (1) \| Respond to of 42804

<< I am the one who made the big mistake by having faith in what Noam & co. did with the company for 34 quarters, I still can't believe that was just a freak situation.>> No, it wasn't. I think I demonstrated that with a spreadsheet I posted several times. This is normal (though aggressive) growth through acquisition. The change of EPS pattern comes mainly from a corporate decision to grow their R&D and SG&A significantly faster (double 1997) than their revenue growth. We know many of the reasons for this 1) Increased development due to Missed product cycle 2) Acquisition of startups written off to R&D 3) Increase of Sales and Marketing staffs 4) Capital and other expenses related to their foundry to significantly increase their production capacity 5) Expenses for their PISTOL lab 6) Infrastructure staffing increases due to growth from a small company structure to a large company structure (Noam mentioned this several times) We know the drop in Gross Margins hurt, but it is this INTENTIONAL massive increase in R&D and SG&A that hurt the most. They increased these numbers over $8 million ($25.45 million vs $17.40 million) just since Q2. The payoffs are just starting to show up, and some, like the $950,000 investment in New Access for 19% ownership won't show up for a while. I did something interesting. I recalculated Q4 earnings - every line item exactly as reported, except I kept R&D and SG&A the same as Q2. They then have a pre-tax net income of over $10 million instead of the $2 million they reported. They did something strange with income taxes in Q4 too. They recorded $4.665 million, which exceeded their pre-tax net income of just over $2 million. This had to have been an adjustment due to the restatements they also did in Q4. I calculated this adjustment to be just over $4 million. For taxes I used 31% which came to $3.15 million, then ADDED $4 million to the number to simulate their adjustment. Before the extraordinary gain on bonds, they still end up with $0.11 basic and $0.10 diluted. After the extraordinary gain they get $0.22 basic and $0.19 diluted. I can post the entire calculation if anyone is interested. I think this shows adequately that they are making a big voluntary bet on their future, which won't show up fully in the bottom line until next year.

To: rascalbythesea who wrote (12673)	4/11/1999 4:21:00 PM
From: George Dawson	Read Replies (1) \| Respond to of 42804

bennythebug and Sector: A few observations: 1. With regard to the convertible debentures. I made a few posts here after doing some research on the subject. My main concern was whether the convertibles could behave like convertible preferred stock, specifically floorless convertible preferreds or stock where the conversion is set by a formula that results in a conversion price below the current market value. My research turned up nothing to suggest that they could. In other words, I don't think they can be sold short for profit - basically because you would never be able to recoup your purchase price with this mechanism. I posted a note on the "Floorless Convertible Preferred" thread and got this response: Message 6574285 My search for contradictory opinions has been fruitless. 2. There are comparisons to Cisco and others here and those are not the peer groups that I see in the financial literature. The comparisons are more like EMLX, ACT, FVCX, ZRAN, etc. or companies with market caps of 126M -> 232M. From a competitive standpoint - the key question is what can be done to improve their margins and the ratio of high margin/low margin sales. I don't think that there should be a wait for WDM gear. The GE market is described as taking off (finally). Extreme Networks(EXTR) stock skyrocketed on Friday (from $17 -> $55.375). An inspection of their product line shows that there is a degree of overalap with MRVC products: extremenetworks.com What is MRVC doing to sell this line of equipment and provide the product features their customers want? 3. Institutional ownership is low relative to the semiconductor and S & P Index (26.3% vs. 57% and 62.4% respectively). 4. Analysts and consensus ratings on most of the reports I see are still rating the company as a Buy or Buy/Hold. The consensus of the 2 to 4 analysts who follow the company changed in Sept/Oct 1998 when they became less bullish. 5. In my opinion the current decline in share price is a result of the decreased margins and R&D and restructuring costs. If that is the case this is reflected in the short position which basically is people betting against the company or hedging a position. There is no mechanism I know of that would result in pure short selling that would keep the price down. I think that there may have been some advanced warning of cash flow concerns in the degree of insider selling which was steady in 1996 and 1997 at prices ranging from $18 to 47.25. A total of 688K shares were sold at that time. If I recall the discussion on this thread it seems that people thought these sales were reasonable reward for management at the time. George D.