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Optical Access Yanks IPO

Light Reading
News Analysis
Light Reading
11/21/2001

When MRV Communications Inc. (Nasdaq: MRVC) filed plans a year ago to spin off its last-mile optical wireless unit in a $60 million initial public offering, buzzwords like “optical” and “wireless” spurred investor demand.

What a difference a year makes. Last Friday, the MRV division, dubbed Optical Access Inc., finally withdrew its IPO plans, which had Bear Stearns & Co. Inc. as lead underwriter. In typical understatement, Optical Access’s Nov. 16 filing with the Securities and Exchange Commission blamed “recent and current market conditions.”

Even when times are good, it's typical for several months to elapse between a company’s initial filing plans and its IPO. In the case of the Optical Access filing, the market was rapidly deteriorating during that time frame. When Optical Access filed in October 2000, the Light Reading Index was at 1,071. By the same date in December, the Index had slumped 23 percent to 827, which may have seemed like a good reason to wait for the market to improve. It’s now at 219, down 80 percent over the last 13 months.

Optical Access had planned to raise the $60 million by selling 5 million shares at about $12 each. Following the offering, there would have been 47 million outstanding shares in the company, with a market value of $564 million.

According to the most recent financial figures filed with the SEC, Optical Access had $15 million in sales for the nine months through Sept. 2000. At an annualized rate, that would have made the company worth 28 times sales right out of the gate.

Given the company’s brief financial history, the numbers sound absurd, compared with today’s valuations of companies that provide similar products. Optical Access has no direct competitors that are pure-play public companies. But providers of similar equipment that uses radio frequencies rather than optical technology are now trading at very low sales multiples. Netro Corp. trades at five times sales and Ceragon Networks Ltd. (Nasdaq: CRNT) trades at less than two times sales. Canon Inc., which has an optical division that competes directly with Optical Access, trades at barely over one-times sales.

If Optical Access’s high sales multiple did not frighten off investors, then the bottom line surely would have done the trick. The company lost $31 million, or 75 cents a share, during the nine-month period. And that, of course, was at the peak of the buying boom for optical equipment. Yet even at that rate, the IPO would have funded only two years of losses.

Despite the optimism of a year ago, Optical Access’s prospectus offered little hope that business would improve in the future. The document is littered with dire references to the limitations of the company’s technology, the challenges of merging its acquisitions, and the severity of the competition. Aside from competitors mentioned above, other optical wireless rivals include AirFiber Inc., LightPointe Communications Inc., and Terabeam Corp.. Competition for its switching products comes from industry leaders like Cisco Systems Inc. (Nasdaq: CSCO), Nortel Networks Corp. (NYSE/Toronto: NT), Foundry Networks Inc. (Nasdaq: FDRY), and Extreme Networks Inc. (Nasdaq: EXTR).

After the offering, MRV would have continued to own 89 percent of Optical Access. In such a case, it would have been similar to the case of Luminent Inc. (Nasdaq: LMNE), another MRV subsidiary that was successfully spun out as an IPO but whose majority of shares were retained by MRV. MRV is now second-guessing that spinoff and says it will absorb Luminent back into the company (see MRV: Luminent's a Drag).

The IPO withdrawal clears the way for Optical Access to obtain private funding, which would be necessary if it plans to exist as a standalone company. Its balance sheet in September 2000 showed a mere $567,000 in cash.

Optical Access’s securities lawyer, Mark Klein of Kirkpatrick & Lockhart, was not available for comment. Meanwhile, MRV’s stock dropped 52 cents (9.04 percent) Tuesday to close at 5.23

— Tom Davey, special to Light Reading, http://www.lightreading.com

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dishwasher
dishwasher
12/4/2012 | 7:32:28 PM
re: Optical Access Yanks IPO
Apart from the analysis of that quite old S-1, how's Optical Access really doing nowadays?

From what we see and hear the technology must be performing quite well and customers seem to like the value proposition. Last time we heard the management talking, they spoke about breaking even around this period. Care to check with them?
duffeck
duffeck
12/4/2012 | 7:32:27 PM
re: Optical Access Yanks IPO
"Apart from the analysis of that quite old S-1, how's Optical Access really doing nowadays?"

A very good question! This is an extremely poorly researched article. The answer is that they are doing pretty well in the face of the adverse market referred to in the article. There is a lot of publicly available information on the OPXS website that could have been included to give a more complete picture. http://www.opticalaccess.com/ For example they have over 4500 FSO links installed worldwide, a lot more than anyone else public or private. As I recall their sales are currently about $7M per quarter. The only publicly traded company in a similar business that I know of is Plaintree Systems http://www.plaintree.com/ . The stock of Plaintree currently trades at a P/S of about 16 based on an annualized sales of $1.3M ttm. Based on that ratio OPXS should be worth about $448M or about $9 per share based on 47M shares. Obviously an optimistically high estimate, considering the market cap of the parent company MRVC is only about $405M, but you should get my drift.

duff
SectorInvestor
SectorInvestor
12/4/2012 | 7:32:25 PM
re: Optical Access Yanks IPO
<<this an="" article.="" extremely="" is="" poorly="" researched="">>

I'll second that. It's information is woefully out of date.

Per MRVC's last two conference calls, we know that Optical Access had $7.7 in revenue in Q2, and "about the same" in a tough Q3, which included the 9/11 disruption.

That gives them about $15 million for 6 months, or $30 million annualized, even without factoring in any growth. That is a major difference right there from the article's outdated revenue estimates obtained from a year old SEC filing.

Optical Access not only has over 4,500 installed links installed all over the world, as you say, but they offer the most complete product line in the Industry. In addition to FSO, their Fiber Driver and Lambda Driver products add a breadth of product and experience that others can only dream about.

I found this link to a Powerpoint presentation from their website posted on SI recently. You probably have to cut/paste it to the address line on your browser to view it, and it takes a long time to load, but it is well worth viewing.

ftp://ftp.opticalaccess.com/pu...

</this>
SectorInvestor
SectorInvestor
12/4/2012 | 7:32:24 PM
re: Optical Access Yanks IPO
The LightReading message editor can't handle text inclosed in <>. Here is a repost.

"This is an extremely poorly researched article. "

I'll second that. It's information is woefully out of date.

Per MRVC's last two conference calls, we know that Optical Access had $7.7 in revenue in Q2, and "about the same" in a tough Q3, which included the 9/11 disruption.

That gives them about $15 million for 6 months, or $30 million annualized, even without factoring in any growth. That is a major difference right there from the article's outdated revenue estimates obtained from a year old SEC filing.

Optical Access not only has over 4,500 installed links installed all over the world, as you say, but they offer the most complete product line in the Industry. In addition to FSO, their Fiber Driver and Lambda Driver products add a breadth of product and experience that others can only dream about.

I found this link to a Powerpoint presentation from their website posted on SI recently. You probably have to cut/paste it to the address line on your browser to view it, and it takes a long time to load, but it is well worth viewing.

ftp://ftp.opticalaccess.com/pu...

lo_mein_noodles
lo_mein_noodles
12/4/2012 | 7:32:22 PM
re: Optical Access Yanks IPO
Ok, by the looks of these posts at least 3 people still work at Optical Access.
Tom Davey
Tom Davey
12/4/2012 | 7:32:22 PM
re: Optical Access Yanks IPO
While Plaintree Systems is ostensibly in the same business as Optical Access, your comparison of this 13-year-old outfit with $2 million in annual sales to Optical Access is a bit of a stretch. Although Optical Access executives declined to comment for the story, I'm sure they'd consider it an insult to call Plaintree a competitor.

The number of FSO installations is not necessarily a guage of success. Even Plaintree, through an acquisition, claims to have 3,000 wireless installations worldwide. Yet, at 36 cents a share, Plaintree is way over priced. I don't know why this is the case. But I'd guess that perhaps Plaintree's stock, like many penny stocks, is guided by market makers who have reasons for driving it to high multiples. There are still plenty of suckers willing to buy from boiler rooms.

The unfortunate reality is that Plaintree had a ttm loss of $5.8 million, increasing its deficit to a stunning $88.6 million. Not surprisingly, Plaintree is currently looking for funding. The company releases its second quarter financial report next week.
SectorInvestor
SectorInvestor
12/4/2012 | 7:32:21 PM
re: Optical Access Yanks IPO
Yes, Plaintree doesn't compare. Neither does Lightpointe with annual revenue under $5 million, but they get the lion's share of press in LR.
We also hear very little about Terabeam, Air Fiber, or fSona.

Tom, I hope you took the time to view the Powerpoint presentation I provided a link to in a previous post. I would like to hear your comments on that.

Optical Access has to be considered a leader in this segment. Has anyone out there posted better than $15 million revenue in the last 6 months? If there is, I would like to know about them.
semimania
semimania
12/4/2012 | 7:32:19 PM
re: Optical Access Yanks IPO
What a poorly researched story.
semimania
semimania
12/4/2012 | 7:32:18 PM
re: Optical Access Yanks IPO
I guess because they declined tp comment you trashed them?
duffeck
duffeck
12/4/2012 | 7:32:16 PM
re: Optical Access Yanks IPO
"While Plaintree Systems is ostensibly in the same business as Optical Access, your comparison of this 13-year-old outfit with $2 million in annual sales to Optical Access is a bit of a stretch."

I agree the comparison of OPXS to Plaintree obviously overstates OPXS's worth and I said so in my original message. But as I said Plaintree was the only public company I am aware of in a similar business. Do you believe the comparison made by Lightreading of OPXS to Cannon a $28B maker of cameras, copy machines and printers is a more valid comparison. Or for that matter do you think Lightreading's comparison of OPXS to Ceragon Networks a provider of RF network equipment (read no FSO) is less absurd? I'd be interested in your own evaluation of OPXS. Let's see it.

duff

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