Source Photonics Files for IPO

Source Photonics, the MRV Communications Inc. (Nasdaq: MRVC) subsidiary, today filed for a $130 million initial public offering. MRV has been discussing the plan to take Source public since January. (See MRV Buys Fiberxon, Preps IPO.)

Source, an optical components maker, didn't specify how many shares it was selling, nor did it state a specific price per share in its S-1 filing with the SEC. The $130 million figure was tossed out "for the purpose of calculating the registration fee..."

Coincidentally, MRV shelled out just over $130 million to buy components maker Fiberxon, which it then merged with LuminentOIC Inc. to create Source in the first place. (See MRV to Acquire Fiberxon.)

The Fiberxon buy rubbed MRV investors the wrong way at first because Fiberxon was in the middle of dealing with accusations of financial and accounting irregularities. Fiberxon's own auditors once noted that a review of the company's financials "called into question the commitment of Fiberxon's management to maintain reliable financial reporting systems... " (See MRV Sags on Fiberxon Buy and MRV Closes Books on Fiberxon.)

Source's S-1 filing notes that the Fiberxon accounting mess led to the departure of the company's CEO and VP of finance prior to the company's acquisition by MRV. Parent company MRV says it has the problem under control but noted that it can't "provide absolute assurance" that all of Fiberxon's accounting troubles were directly caused by the behavior of those executives that left.

Still, Source is in an enviable position in the fiber-to-the-home components market. Source supplies components and subsystems that now power at least two very high-profile, fiber-fed access networks, AT&T's U-verse and Verizon's FiOS. As a direct supplier to Alcatel-Lucent, Motorola, Tellabs, UTStarcom, ZTE, and others, Source boasts in its financial filings that it alone has delivered "approximately 90% of all ONT [optical network terminal] transceivers shipped through September 30, 2007" in North America.

But with that enviable position also comes some extreme customer concentration. Tellabs accounted for 49 percent of Source's revenues during 2006.

For that year ended December 31, 2006, Source says it booked $92.2 million in revenues. Make that $140.3 million, pro forma, if you add in Fiberxon's revenues, too.

As of September 30, 2007, the company says it had 1,486 employees and full-time contractors worldwide.

— Phil Harvey, Managing Editor, Light Reading