MRV Rolls Dice on IPO, But Odds Aren't Good

MRV Communications Inc. (MRVC)  isn't going down without a fight. The ailing telecommunications gear company, pounded by years competing in one of the toughest sectors in technology, is taking its Source Photonics unit public. 

MRV formed the transceiver business after buying optical equipment startup Fiberxon Inc. in January for $131 million and  folding it into its Luminent Inc. division. Although MRV share are up more than 20% on the news, it might be a final roll of the dice for a small, cash-poor company that faces the likes of titans such as Alcatel Lucent SA in selling fiber optic components. MRV's third-quarter sales were up 29% from the year-ago period to $116 million, but it recorded a net loss of $12.6 million, versus net income of $200,000. In mid-December the company's shares hit a 52-week low.

One sign of MRV's desperation is that it bought Fiberxon despite discovering financial irregularities in the target's books. Not small stuff, either. The problems eventually led to the departure of Fiberxon's CEO and vice president of finance. MRV didn't disclose today how many shares in the Source Photonics IPO it would parcel out to stockholders (although message board chatter put that at 15%)  and what ownership stake it would keep. If there's a time to take Source Photonics public, of course, it might be now, with other photonics players, such as Fabrinet Co. Ltd., lining up IPOs. After it draws some cash from the offering, MRV's best long-term plan mght be to try to get acquired by a bigger telecom gear maker. - Alain Sherter

See Dec. 26 press release from MRV

See Jan. 26 story from TheDeal.com [$]

Comments

[Greg Waters]

Mr. Sherter,
I try to avoid replying to articles in far-flung internet magazines, but I have to question the amount of research you applied to this article. One simple and clear example is your following statement: "Although MRV share(s) are up more than 20% on the news, it might be a final roll of the dice for a small, cash-poor company that faces the likes of titans such as Alcatel Lucent SA in selling fiber optic components."

First, to state that his might be the "final roll of the dice" suggests that there is the possibility that the company might be going bankrupt. Nothing from their balance sheet to their income statement suggests such an outcome. They have no debt and have been bouncing around cash flow neutral for a couple of years. Not exactly the bleeding one typically would see before a bankruptcy announcement. There is enough cash on the books that large players in the industry feel very comfortable in both buying their components as well as selling their telecom equipment gear.

Second, they hardly "face the likes of titans such as Alcatel Lucent SA in selling fiber optic components". ALU is a customer of Source Photonics (wholly owned by MRV), which sells components to ALU. ALU does not manufacture its own components for their FTTX solution. Anyone who conducted even minor research would recognize that ALU is part of the Verizon FiOS build out, and that they use Source Photonics' components in their FTTX product. There are no real "titans" providing FTTX components. Actually, SP is the largest provider of FTTX triplexers, and ALU utilizes SP's components in the vast majority of their some 30 or so world wide FTTX build outs.

I am really not sure about the intent of your article, but I find it difficult to believe that an editor would write this type of seriously factually flawed article. Did you read a research report or listen to a conference call? I did see your lone source mentioned is "message board chatter". Not exactly research. I'll wrap this up, as I now feel I've spent more time responding to your article than you did researching it.

As a disclosure, I do own MRVC, but no other companies mentioned in this response or in your article.