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MRV Misses by a Cent

Light Reading
News Analysis
Light Reading
2/20/2001
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MRV Communications Inc. (Nasdaq: MRVC), a holding company for several networking startups, today missed Wall Street's expectations for the second time in a year as it reported its fourth quarter and yearly results for fiscal year 2000.

MRV turned in earnings of $4.5 million ($0.06 a share) -- ignoring charges such as non-cash amortization of intangibles from acquisitions and non-cash deferred stock compensation expenses. Its earnings per share number was one cent lower than what was expected by the lone Wall Street analyst still covering the firm.

Add in the ignored charges and MRV lost $45 million ($0.62 a share) for the quarter, which is up from its year-ago loss of $13.1 million ($0.24 a share).

However, MRV's quarterly revenues rose 32 percent to $97.7 million from last year's revenues of $73.9 million. Likewise, its yearly revenues for fiscal 2000 were $319.4 million, compared with year-ago revenues of $288.5 million.

Acknowledging everyone else's conservative outlook, CEO Noam Lotan said MRV expects its revenue growth to be in the 5 percent range for fiscal Q1 of 2001.

Lotan said he believes his company is terribly undervalued on Wall Street, but he failed to give much insight into where MRV’s revenues come from, outside of its Luminent unit (see Luminent's Dull Debut). MRV doesn’t break down the performance of any of its other operating units or portfolio companies.

The only thing investors can easily understand about MRV is that it’s got some moving parts in the access and metro space. Beyond that, the firm’s most interesting quality is its complexity.

MRV owns roughly 90 percent of Luminent Inc. (Nasdaq: LMNE); 100 percent of Optical Access Inc. and NBase-Xyplex; 97 percent of iTouch Communications; 20 percent of Zaffire Inc.; 53 percent of Charlotte's Web Networks Ltd.; 90 percent of Zuma Networks; 35 percent of RedC Optical Networks Inc.; 60 percent of Optical Crossing; 50 percent of All Optical; and 42 percent of Hyperchannel. Other MRV stakes include a 58 percent stake in Broadband Highway; a 9 percent stake in Tellaire; a 35% stake in PhoneDo Networks and a 90% stake in Cimi Networks.

A couple of colorful moments came during the call. One was Lotan’s defense of Zaffire, a startup that recently saw a newly signed customer go out of business (see Zaffire Gets Zapped). Lotan says Zaffire is doing fine, it’s started revenue shipments, and its lost customer didn’t faze the company since it “has several other customers lined up.”

”Rest assured that [Zaffire’s] definitely kicking butt out there,” he said.

Also interesting was MRV’s introduction of Cescomm, an operating unit focused on delivering packet data to mobile phones on 3G networks. Specifically, the company makes a technology that translates data sent from 3G networks to ATM transport networks. The catch is that its technology is only needed after 3G networks have been built.

Cescomm is the second company of MRV’s portfolio to come from its acquisition of CES, a Swiss firm it bought in May 2000. Itouch was also formed when that acquisition was made. Cescomm said it was currently shipping to NTT Docomo and has an annual run-rate of about $25 million.

Prior to its earnings call, MRV shares fell 3.50 (18.7%) to 15.25. In after-hours trading on the Island ECN, the stock inched back up to 15.75 after the call.

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

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bbayless3
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bbayless3,
User Rank: Light Beer
12/4/2012 | 8:51:59 PM
re: MRV Misses by a Cent
After today's close, Luminent and MRV had the same market cap, $1.09B. Doesn't MRV own around 90% of Luminent? If so, that means the market is valueing MRV's other holdings at around $100 million. Does that seem low to anyone else? What am I missing?
dishwasher
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dishwasher,
User Rank: Light Beer
12/4/2012 | 8:51:59 PM
re: MRV Misses by a Cent
CES is a Swiss company. Hoped to learn a bit more about MRVC, and why it might be a fishy construction. Dishappointed.
NOKIA
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NOKIA,
User Rank: Light Beer
12/4/2012 | 8:51:57 PM
re: MRV Misses by a Cent

Phil has a known problem with researching the facts and getting the details right... As I advised him last time - he should make at least a sincere effort...

SectorInvestor
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SectorInvestor,
User Rank: Light Beer
12/4/2012 | 8:51:56 PM
re: MRV Misses by a Cent
I agree the article appears biased and poorly researched. If he had even done modest research, he would have known several things he missd.

1) Only one analyst follows MRVC, Chet White from FSVK. The phrases "missed Wall Street's expectations" and " one cent lower than what Wall Street was looking for" are greatly exaggerated in that light.

2) Simi Networks is "Cimi" Networks. The name was even spelled out in the CC. The author doesn'tbother to check facts.

3) And what about this statement regarding CESComm?

"Another interesting tidbit was MRVG«÷s introduction of Cescomm ... The catch is that its technology is only needed after 3G networks have been built."

Tidbit? Catch? Phil totally ignores the facts stated in the CC that they are already cash flow positive, have a deal with NTT Docomo in Japan, already have a $25 million revenue run rate and are to be the next MRVC IPO later this year after Optical Access.

4) And this really sounds like neutral reporting doesn't it?

"A couple of colorful moments came during the call. One was LotanG«÷s defense of Zaffire, a startup that recently saw a newly signed customer go out of business (see Zaffire Gets Zapped ). Lotan says Zaffire is doing fine, itG«÷s started revenue shipments, and its lost customer didnG«÷t faze the company since it G«£has several other customers lined up.G«•

G«•Rest assured that [ZaffireG«÷s] definitely kicking butt out there,G«• he said."

5) Or this statement:

"The only thing investors can easily understand about MRV is that itG«÷s got some moving parts in the access and metro space. Beyond that, the firmG«÷s most interesting quality is its complexity."

This was a hatchet job if ever there was one. It is not worthy to carry the LightReading label, where the article are generally excellent.

slightreading
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slightreading,
User Rank: Light Beer
12/4/2012 | 8:51:35 PM
re: MRV Misses by a Cent
Phil:

You would provide a much clearer picture on MRVC for investors if we didn't have to sift through the negative bias inherent in your journalism. For some reason (of which I am unaware) you seem intent on focusing as much negative light on MRVC as possible. In the future, please leave your personal vendetta out of the picture and report an opinion based on hard financial facts, one of which is that the sum of MRVC's parts reflects an undervalued market cap.
jmorgus
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jmorgus,
User Rank: Light Beer
12/4/2012 | 8:51:35 PM
re: MRV Misses by a Cent
This gets my vote for whiny post of the week!

What you are really "unaware" of, but what is TRANSPARENTLY OBVIOUS to anyone else, is that YOU are biased because YOU own MRVC stock.

I mean, come on! There's nothing in this article that suggests bias.

Let's stop the whining!!!




"You would provide a much clearer picture on MRVC for investors if we didn't have to sift through the negative bias inherent in your journalism. For some reason (of which I am unaware) you seem intent on focusing as much negative light on MRVC as possible. In the future, please leave your personal vendetta out of the picture and report an opinion based on hard financial facts, one of which is that the sum of MRVC's parts reflects an undervalued market cap."
slightreading
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slightreading,
User Rank: Light Beer
12/4/2012 | 8:51:33 PM
re: MRV Misses by a Cent
Just responding to the idiot author of post 6. I apologize to all of you other folks.

I merely expect the absence of negative sarcasm in an earnings report. I did not ask Phil to gush about MRVC's accolades or sing high praises to Noam Lotan. I just want the facts on MRVC, and if you took time to do the math yourself instead of focusing on unfounded accusations, you'd see the truth - MRVC's market cap is undervalued given its cash position and portfolio company stakes.
DCITDave
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DCITDave,
User Rank: Light Beer
12/4/2012 | 8:51:31 PM
re: MRV Misses by a Cent
There's no personal vendetta here. I just think it'd be helpful if the company wouldn't keep its cards so close to the vest.

But I get that way about EVERY company I report on. No matter what they tell me, I always push for more. If I didn't, I'd be working as their publicist, not as a news analyst.

Anyway, your critique of my article probably has less to do with my reporting style than your own financial interest in the company.

If you feel I'm doing readers a disservice, than you're the one with the problem. Why don't you give me a call let's talk about it?

ph -- 817-922-8689
perry1961
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perry1961,
User Rank: Light Beer
12/4/2012 | 8:51:30 PM
re: MRV Misses by a Cent
Is the article biased? Maybe.
Does it really matter? Not a chance.
MRVC isn't some venture capital start-up with dwindling cash.All the negative press in the world can't break the company if its products and services are in demand.
If a few investors are swayed in the meantime...oh well.
Hey,we can't all get rich,can we? Besides,it isn't Phils' job to watch over our portfolios.He's just supposed to report some of the facts,right?
Keep up the good work Phil.
semimania
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semimania,
User Rank: Light Beer
12/4/2012 | 8:51:22 PM
re: MRV Misses by a Cent
although i dont agree with your article. i thought it was very nice that you gave your # and are willing to discuss the matter .
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