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Optical/IP

Luminent's Dull Debut

In the face of a hostile stock market, shares of Luminent Inc. (Nasdaq: LMNE), priced yesterday at $12, began trading today below the expected range of $13 to $15.

Luminent shares went out before midday, and shortly thereafter they were trading just below the $12 mark. Luminent’s parent, MRV Communications Inc. (Nasdaq: MRVC), was down about $4, to $28.50, at noon.

By the end of the day, Luminent shares rose a paltry $0.12 to $12.12 and MRV was at $28.18.

Luminent, maker of fiber optic components for metropolitan and access networks, raised $144 million from its IPO. Credit Suisse First Boston, CIBC World Markets, Robertson Stephens, U.S. Bancorp Piper Jaffray, and First Security Van Kasper underwrote the offering.

The price range for this stock was set in early September, some time before the market began punishing large networking equipment vendors for recent earnings and inventory scares (see Cisco: Boom or Bust? and Nortel Bashing Continues).

The investing world isn't that excited about Luminent, and that's been apparent for some time. Amongst other indicators, investors shrugged off changes to get in on Luminent's IPO via buying shares of its parent company, MRV (see Investors Head for Luminent's Back Door). In fact, the value of MRV’s shares has dropped more than 43 percent in the past two months, despite the firm's growth (see MRV Reports Strong Q3 Growth).

Now that Luminent’s public, MRV will own approximately 92 percent of Luminent's outstanding stock. Or, if Luminent’s underwriters exercise their options, MRV will own 91 percent.

Despite a yawner of a first day, Luminent has the potential to be a solid standalone company. For the nine-month period ending in September, Marconi Communications PLC (London: MNI) accounted for 15 percent of Luminent's net sales, and Cisco Systems Inc. (Nasdaq: CSCO) accounted for 12 percent. The good news here is that Luminent's customer base has become much broader in the past year.

However, it should be noted that Luminent doesn't have Cisco or Marconi locked into long-term contracts. Both firms buy using one-time purchase orders, which, theoretically, means sales to those firms may fluctuate over time.

Luminent reported net income of $3.5 million in 1998 and $4.2 million in 1999. However, due largely to costs related to acquisitions and employment agreements for its CEO and CFO, Luminent reported a net loss of $39.1 million for the nine months ending September 30, 2000.

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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