Shares of optical networking holding company MRV Communications Inc. (Nasdaq: MRVC) fell, after the company reported yesterday that its third-quarter revenues dropped by 16 percent compared with the same period last year. Net revenues for the quarter were $69.7 million, down from $89.5 million in the second quarter of 2001 and down from $82.7 million in the third quarter last year.

In trading midday Tuesday, MRV shares declined 0.47 (9.77%) to 4.34.

MRV reported a net loss of $89.6 million, or $1.16 per basic and diluted share for the third quarter, compared to a net loss of $94.1 million, or $1.24 per share, for the second quarter and a net loss of $74.4 million, or $1.06 per share, for last year’s third quarter.

Despite the decline in revenues, Noam Lotan, president and CEO of MRV said he was optimistic. He pointed out that, excluding the results of the company's optical component subsidiary, Luminent, MRV not only exceeded its original third-quarter projections of $43 million to $47 million, but also the increased guidance of $46 million to $50 million given after MRV’s second-quarter results were released in July. “This is a tremendous accomplishment, given the current economical downturn and the reduction in capital spending,” Lotan said on a conference call Monday night.

Shaul Eyal, an analyst with CIBC World Markets agrees. "MRV is suffering from guilt by association,” he says, explaining the company’s falling stock prices. "Investors should separate between Luminent and non-Luminent losses."

So what’s the problem? Investors may be frustrated with the on-again, off-again saga of spinning Luminent out as a public company. Luminent originally went public as a separate public company and MRV told investors they would eventually receive the shares, but the company is being folded back into MRV as a merger in the fourth quarter. And now the company is citing Luminent as a drag on the quarterly numbers.

MRV already owns 92.3 percent of Luminent stock. The remainder of the shares will be converted, entitling each Luminent stockholder to 0.43 of a share of MRV common stock. Luminent’s third-quarter revenues, released on October 23, had plummeted to $18.8 million from $36.0 million in the same quarter last year. “The merger will have a positive effect on growth,” Lotan said. “We have a good plan, which we are pursuing. I personally feel energized.”

MRV increased its fourth-quarter revenue expectations for the second time this year, reporting that it expected revenues for the quarter, excluding Luminent, to range from $54 million to $58 million. Expectations for 2002 were also high, ranging from $220 million to $260 million, up from a previous estimate of $180 million to $210 million.

— Eugénie Larson, special to Light Reading
http://www.lightreading.com