CHRISTOPHER WOODARD Staff Reporter MRV Communications Inc. was recently named the third fastest-growing company in greater Los Angeles, but apparently no one told Wall Street. In the past few weeks, MRV’s stock has taken a nosedive in response to slowing sales. The Chatsworth-based company was lauded during Deloitte & Touche LLP’s recent “Fast 50” awards banquet for posting 2,136 percent revenue growth over the last five years, making it the fastest-growing company in the San Fernando Valley. However, the company’s stock lost more than half of its value on just one day in August after its chief executive projected lower than expected third-quarter sales. The stock has been trading around $6.50, an 83 percent decline from its 52-week high of $38.37. “It just shows how fast things change,” said Suzanne Thompson, public relations manager for Deloitte & Touche. “The ranking is based on revenue from ’93 to ’97. We have to base it on something.” MRV officials, and at least one analyst following the company, maintain that the stock is undervalued. They believe the company will more than merit “Fast 50” status in the future as the demand for telecommunications gear increases. “I think they’ve been unfairly hammered,” said Fredrik Tjernstrom, an analyst for Horizon Asset Management Inc. in New York. “I definitely see earnings and revenue accelerating.” Tjernstrom said MRV is on the cutting edge of such innovations as wave division multiplexing, a technology that allows more information, either voice or data, to be squeezed through phone lines. “I definitely think the stock has bottomed out,” said Tjernstrom. Not everyone agrees. Mark Roberts, director of research for Off Wall Street Consulting Group Inc., a Cambridge, Mass. firm that specializes in identifying short sale targets, said the company is in a “very troubled situation.” Roberts, whose company already covered its short and is no longer involved in the stock, said MRV has billed its products as being cutting edge when in fact they are more of a commodity. Meanwhile, he accused the company of inflating its earnings by taking one-time charges for acquisitions rather than billing them as operating expenses. MRV’s Chief Executive Noam Lotan said Roberts never took the time to call him and talk to him about the company’s accounting practices or its products. Lotan said the company follows Security Exchange Commission guidelines and generally accepted accounting practices in writing off certain charges for various mergers with other companies. “We’ve actually been quite conservative,” he said. “I challenge anyone to show me we’re doing anything different than any other firm.” Lotan admitted that some of the products MRV has developed, such as certain switches for local-area networks, have become something of a commodity, as other equipment makers have honed in on profitable market niches. However, the company has other products he considers cutting edge and is constantly developing next-generation products to help it remain competitive, he added. MRV Communications makes electronic components that allow computers to talk to one another, either through local area networks (systems contained in one office) or wide area networks (computers in more than one office that communicate via modem.) Mannix O’Connor, vice president in charge of sales, said the company, with its January acquisition of Xyplex Inc., is well positioned to take advantage of the growing demand for data and voice communication. MRV had specialized in local-area network devices, but its purchase of Xyplex from Simi Valley-based Whittaker Corp. for $35 million gives it the capability to compete in the market for wide-area network routers and remote-access servers. The company cut costs at Xyplex, and now has that company’s nationwide sales force selling MRV equipment in addition to Xyplex gear, said O’Connor. MRV reported net income for second quarter ended June 30 of $8.7 million (31 cents a diluted share), compared with $5.2 million (21 cents) in the like period last year. Revenues were $65.7 million vs. $39.5 million. But because of weaker than anticipated demand for the company’s products, especially in Europe, Lotan announced on Aug. 27 that revenue and net income would fall below MRV’s expectations for the third quarter. The company expects revenue to be down 10 percent to 15 percent from the second quarter, and operating expenses to increase 8 percent to 10 percent over the second quarter’s $17.4 million. Operating expenses were expected to rise due to increased costs for research and development, administration and other general expenses. Also, Lotan warned investors that some of the company’s next-generation products, which had been scheduled for release in the third quarter, would be delayed until the end of the fourth quarter. The day after the announcement, the company’s shares lost 52.6 percent of their value, dropping from $14.37 to $7.56 at the close. Frustrated by the sagging stock price, the board of directors authorized the purchase of up to 1 million shares of stock. Lotan said if you look MRV’s competitors, they’ve all been hard hit by the economic turmoil in places like Asia, and Europe. But overall, he believes the company is weathering the storm. “Actually, we’re very, very bullish on our prospects,” he said.