Wild Ride for MRV Communications
As an aspiring engineer in the 1970s, Noam Lotan couldn’t foresee the Internet revolution or the rewards he would some day reap from it.
Back then, the student at Technion-Israel Institute of Technology, was just trying to unlock the mysteries of the integrated circuit in professor Schlomo Margalit’s class.
Lotan and his pioneering professor now are on more equal footing, albeit halfway across the globe. They are top executives at MRV Communications Inc., a Chatsworth fiber optics firm that has emerged as a popular player in high technology.
Margalit, 58, is the company chairman and Lotan, 48, is the chief executive. Together, they have seen MRV Communications grow from a small start-up of 10 people to a publicly traded corporation with 10,000 employees, global production facilities and an increasing cadre of investors.
That interest is due in no small part to the phenomenal run-up in MRV’s stock, which was trading at under $6 in March 1999, before an elevator-like ascent to $194.88 about a year later.
“It’s no different from when we were very small, you just add a few zeros,” Lotan said. “The one difference is maybe that when you’re a high-profile company, there are higher expectations.”
Since reaching dizzying heights, the stock has fallen back to earth. On Friday, the end of the first quarter, the stock closed at $91.63. Still, that was an increase of 45.73% since Jan. 3 and 1,419.17% in the past 12 months.
The stock market sell-off Monday further cut into the stock, which finished the trading session at $73.63, down more than 20% from last week.
In its most recent earnings statement, the company reported a loss of $13.1 million for the fourth quarter ended Dec. 31, compared with a loss of $2.6 million for the same period in 1998.
Revenues were $73.9 million, down slightly from $74.9 million. As with other high-flying technology companies, the lack of profits at MRV Communications is becoming an issue for investors, said analyst Vivek Rao of Gruntal & Co. in New York.
“The company historically has had good technology and good engineering talent,” Rao said, “but it’s been poor on execution and marketing. The reality of the marketplace is that just having good technology is not good enough.”
MRV started out as a maker of laser diodes and optics before branching into the Internet switching market for local-area networks, or LANs, which are used to link computer users within a company.
Last quarter, the company announced it was exiting the LAN business to focus on network equipment for carriers and service providers.
The company’s core business remains optical components, including fiber optics and devices that direct traffic on fiber-optic networks.
MRV is now positioning itself as an optical incubator, with plans to create and eventually spin off at least 14 companies, including Zaffire, Charlotte’s Networks, Hyporium and Zuma Networks.
The spinoff plans will get the stock moving again, said Chester White, who follows MRV for First Security Van Kasper, a private brokerage firm based in San Francisco.
“I think this is a $304 stock in the next 18 months,” White said. “They have a lot of products and strategic alliances coming down the line. And with the pending IPOs, they should gain strength.”
But MRV has something else going for it. The turnover rate is only 2%, compared with 10-20% annually at many other technology companies, according to company officials.
In many ways, MRV still operates with the entrepreneurial spirit of a start-up, which White says is helped by its push to become an incubator.
“Part of their success is that they’ve given their best guys opportunities to be equity owners. And there’s nothing that makes you burn the midnight oil like owning your own business.”
Lotan, who says his goal is to create an “optical empire,” initially set his sights on running his own company.
After the Technion, Lotan served a mandatory five-year stint in the Israeli military, went to the European Institute of Business Administration in Fontainebleau, France, and landed at Hewlett-Packard in New Jersey before spending eight years back in Israel and Europe with a small start-up called Fibronics.
Meanwhile, Margalit spent his time teaching, researching and developing the ideas that would one day be the basis for MRV.
After being awarded the “Israel Defense” prize for his work in developing infrared detectors for heat-guided missiles, he came to Caltech as a senior research associate between 1982 and 1985.
Lotan lost contact with Margalit until 1990, when a friend told him his old electrical engineering professor had started a company in California. Margalit invited his former student to come work for him.
In taking the job, Lotan says he saw an opportunity to be part of a company developing unique technology.
“I wasn’t looking for financial security,” Lotan said. “I was looking for the adventure of building a company.”
Even today, Lotan says the market for MRV’s products is only beginning to emerge. “Ultimately, we want to have fiber running to every home.”
As for his relationship with his professor, Lotan said: “I’m still learning from him. I’m still a student.”
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MRV Communications
Chatsworth-based MRV Communications shares dropped steadily since March 9, when the stock closed at $190.50. Some analysts say the decline is temporary.
Jan. 3: $60.86
Mar. 31: $91.63
Source: Bridge Information Systems.
