Optical components

MRV Buys Fiberxon, Preps IPO

Optical transceiver vendor Fiberxon Inc. will get its wish to go public, but only after being acquired by MRV Communications Inc. (Nasdaq: MRVC) and merged into that company's LuminentOIC Inc. subsidiary.

MRV announced the plan today, in pieces. The company first announced a planned $131 million acquisition of Fiberxon in cash and stock, a deal expected to close in the first half of 2007. That was followed up by MRV's declaration of a pending Luminent IPO, to be launched after the Fiberxon purchase, possibly as late as 2008. (See MRV to Acquire Fiberxon and Luminent Preps IPO.)

MRV stock was up 11 cents (2.9%) at $3.94 in late afternoon trading today.

The $131 million price consists of $17 million in cash, 21 million MRV shares, and another payment of $31.5 million in cash and/or stock to be made within 18 months of the deal's close.

Fiberxon and Luminent both sell optical transceivers and subassemblies, but officials think the overlap in products isn't so severe. Fiberxon sells EPON transceivers for the Asian market, an area Luminent hasn't tapped, and is also stronger in short-reach, low-cost access transceivers, says Near Margalit, Luminent CEO.

The reasoning behind the deal parallels that of NeoPhotonics Corp. (NYSE: NPTN), which has been broadening its product lines through acquisition. (See NeoPhotonics Expands in China and NeoPhotonics Buys Paxera.)

"We continue to believe scale and size are very important to compete, especially in fiber-to-the-home," Margalit says.

In fact, Margalit says Luminent/Fiberxon might even be the largest transceiver vendor -- that is, when you exclude datacom and enterprise transceivers, an area dominated by Avago Technologies Pte. and Finisar Corp. (Nasdaq: FNSR).

Breadth aside, the Fiberxon buy would also give Luminent its first operational base in China. And while Fiberxon claims a good chunk of its business is outside of Asia, its ties to Chinese carriers certainly helped push the deal. "There's no question Luminent's revenue base was very Western-centric, and the addition of Fiberxon makes for a much more global balance," Margalit says.

Today's deal marks the second time MRV/Luminent has tried to get a piece of China. Earlier this year, Luminent had agreed to acquire HG Genuine Opto, a subsidiary of Huagong Tech Co. Ltd. But sagging market valuations scuttled that deal. (See Luminent Buys Chinese Vendor and Luminent Cancels HG Buy.)

The IPO dream
So, what about Fiberxon? Three years ago, the company had its heart set on a U.S. IPO. Fiberxon was even incorporated in the United States despite having nearly all its operations in China -- a conscious choice made by CEO Li Hsu to increase his company's chances. (See Fiberxon Eyes IPO and Fiberxon Mulls IPO.)

The MRV purchase takes Fiberxon out of an IPO market that's warming up to optical. Optium Corp. (Nasdaq: OPTM) went public in October, opening at $21.25 and closing yesterday at $24.10, a 13 percent increase.

But Fiberxon never built up the kind of IPO buzz that's surrounded the likes of NeoPhotonics, Opnext Inc. (Nasdaq: OPXT), and Santur Corp. (See Optium IPO Rolls On, Optical IPOs: Opnext Is Next, and OFC: Optics & IPOs.)

Fiberxon officials weren't available for comment, but it appears the revenues just didn't spell IPO. Fiberxon was on a fast clip in 2004, when it predicted a $30 million year, doubling its 2003 sales. Officials then were optimistic they could reach $60 million by 2005.

It wasn't to be. Hsu told Light Reading last year that revenues in 2005 climbed to about $39 million, and today the company says 2006 revenues came in at $45 million to $48 million. Fiberxon does claim it's been profitable for the past 17 quarters, but word is that the company started looking for options beyond an IPO.

"We had been hearing for more than a year that the company had put itself up for sale," analyst John Harmon of Needham & Co. wrote in a report issued today.

Fiberxon already had 350 employees in 2004 and has grown to more than 700, according to the MRV press release. Those employees would be retained after the acquisition, giving Luminent a total of 1,300. Fiberxon's executive team will be given senior positions in Luminent, Margalit says -- with some exceptions. Margalit confirmed a rumor that Fiberxon's vice president of finance has left the company.

— Craig Matsumoto, West Coast Editor, Light Reading

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Neoman 12/5/2012 | 3:15:34 PM
re: MRV Buys Fiberxon, Preps IPO it is hard to say the deal is good or not. mrv stop last time HG by "some" reason, but not got the sense to deal with chinese. it said VP finance leaving disclose a lot dirty of mt. but how lv did those, getting out of control or witout of xu? who else and who is next/ if it is real.
chairmanmao 12/5/2012 | 3:15:41 PM
re: MRV Buys Fiberxon, Preps IPO looks the header of MRV refuse to talk about this issue, may it's rumor? so the exposive evidence is welcome!!!
c_headed 12/5/2012 | 3:15:42 PM
re: MRV Buys Fiberxon, Preps IPO Deauxfaux, I presume this post finds you in a more sober mood.

Dr. Near Margalit has been the CEO of Luminent for sometime now. I am not an industry expert, but I have been following the MRV conference calls for some time now and Near has earned a great deal of respect and confidence. He seems young, hungry and aggressive as the move to acquire Fiberxon and the plan to ipo the combined company demonstrate. Luminent has also done a good job with their execution in connection with the FIOS buildout.

The prior Luminent IPO was, in the end, a fiasco. But such were the times, and MRV/Luminent have lived to tell the tale.

deauxfaux 12/5/2012 | 3:15:42 PM
re: MRV Buys Fiberxon, Preps IPO I haven't stopped laughing long enough to catch my breath...

So Schlomo (Margalit...the "M" in MRV) is going to put (his son) Near in charge of a company that is going to go IPO?!?!?!?!?


Well, considering that Schlomo and Noam hired the former head of the "Wire and Central Office battery" business at Lucent to take Luminent out the last time, I suppose that this is not materially more bizzare.

As for NeoPhotonics, you should check what their CEO said at the Needham conference. 2006 was $83M at -26% EBIT, and wont be breakeven until 2008. Implies that Photon is breaking even and everything else is a drag on earnings.

Wall street is not going to tolerate an unprofitable IPO.
deauxfaux 12/5/2012 | 3:15:42 PM
re: MRV Buys Fiberxon, Preps IPO Sorry, still laughing. Indeed, I am thrilled that his CC performance has impressed you.

I am sure that Near would have gotten the job if his dad wasn't the founder of the parent company, and wasn't such a large shareholder.

numinary 12/5/2012 | 3:15:43 PM
re: MRV Buys Fiberxon, Preps IPO "In fact, Margalit says Luminent/Fiberxon might even be the largest transceiver vendor -- that is, when you exclude datacom and enterprise transceivers, an area dominated by Avago Technologies Pte. and Finisar Corp."

So in MRV's 10Q filing (CY06 Q3) the optical components segment of the business was $23.2M. According to your article Fiberxon's qtrly revenue is ~$16M (rounding up for their benefit). This would put the combined company at a ~$40M/Q revenue stream.

Again using SEC data including Opnext S1
FNSR = ~$100M (need to shift to same qrtr and subtract test biz)
BKHM = $56M
Opnext = $55
AVNX = $51

I couldn't find Avago's data, but the rest of these took me about 10min to pull up (and i had to download them all!) We all know that the Fujitsu, Sumitomo/Excelight component companies are doing well too, but their info is hard for a dumb engineer like myself to extract from finance reports.

This acquisition would vault them ahead of EMKR, STLW, OCPI, OPTM, and some others, but unless the SEC data is wrong -- the "largest" claim doesn't seem plausible.
Pete Baldwin 12/5/2012 | 3:15:43 PM
re: MRV Buys Fiberxon, Preps IPO He's talking about unit volume (sorry for not making that clear) -- lots of relatively cheap FTTH stuff, as opposed to the high-end and 10G stuff that sustains other folks.

And, to reiterate, Finisar and Avago are big in a datacomm business that Luminent isn't counting on. Margalit is making no claims on being anywhere close to those guys.

The big guys aren't as interested in the FTTH market because of the margins. So, there's a chance for Luminent and NeoPhotonics to really shine there.
iami 12/5/2012 | 3:15:45 PM
re: MRV Buys Fiberxon, Preps IPO vice president of finance in fiberxon was over. His ugly boss should disappear in 3 days ,and all employee of fiberxon should get what belong to them. if not ....
counting down now
john.smith 12/5/2012 | 3:15:45 PM
re: MRV Buys Fiberxon, Preps IPO How seriously is it about the fault Fiberxon's VP Finance and others involved? Guilty or not?

Does MRV's board know about it?
mhornig 12/5/2012 | 3:15:45 PM
re: MRV Buys Fiberxon, Preps IPO And what might that be?
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