To: Sector Investor who wrote (12879 ) 4/23/1999 2:32:00 AM From: akmike Read Replies (5) | Respond to
Sector-I don't monitor or post on the Fool thread, but I'll put in my 2cents worth and you are welcome to pass it on or not: After 8+ years of sequentially increasing revenues, and building commensurate expectations in the investment community, MRV stumbled with late product transition in the 3rd Q of last year. This happened very soon after tapping institutional investors for 100m in a convertible debenture private placement. There is no doubt that the earnings interruption was neither anticipated nor welcomed. A savvy group of short-sellers exacerbated the situation and preyed on management's naivete and the share price collapsed. Product development has continued in the midst of declining margins on legacy products, the company has continued to invest in r & d and to develop a sales force and service capability in anticipation of becoming more of a full-service provider in the communications area. There is a proven track record of technological expertise. Indeed, if management owned a smaller interest and expressed a willingness to sell the company, the stock would trade much higher on expectation. There is no sense that any approach would be welcomed. There is a strong sense, however, that these guys will use all of the co.'s resources, if necessary, to build the company into a force in communications in the coming decade. The business has been drastically changed and they haven't yet demonstrated any profitability under the current business plan. Because they lack marketing expertise and have burned the Street in the recent past, they have become a "show-me" stock without all the glamour of a start-up which may well have inferior technology, less-experienced management, and a weaker balance sheet. By late 3rd Q of this year some of the"show me" should have been shown and the company could be off on another glorious up-cycle as an innovative full-service vendor in one of the fastest-growing industry segments. Should that come to pass the present shareholders will experience a ride of immense proportions. This is an exciting time in this industry and tomorrow's leaders are here somewhere but the certainty is not there to identify them without fail. MRV has many elements of success but may even quadruple in value from this level before we can be sure of sustained success. The elements that I like most are: 1. The fact that the management has a significant stake in the company, and is looking to appreciate the shares rather than take out their reward in salary + bonuses. 2. The technology seems to be gaining credibility and capable of scalability across the spectrum of competition offerings. 3. They seem to have a firm grasp of costs so that they can be priced very competitively. 4. There is relative balance sheet strength which will provide some staying power and hence, downside protection. What's not to like: 1. No demonstrated marketing expertise at the level of enterprise they are striving to reach. 2. Investor relations is pitiful. They seem to sincerely believe that they can "take care of business and everything will take care of itself." 3. They are biting off an awful lot and therefore the risk of failure is greater than if they would be satisfied to create a multi-billion dollar enterprise. As you can tell, I like this company very much; but I am not assured of success at this stage and don't blame the ones who are only watching at this time.
