Equipment maker scores big with fiber optic triple play.

Ethernet switches, LambdaDrivers and triplexers are not exactly the stuff of everyday conversation--but they make everyday conversations possible.

The specialized products allow data transfers between buildings without tearing up sidewalks, and they allow for networks across college and corporate campuses.

They also are a sweet spot for Chatsworth-based MRV Communications Inc., which sells them to providers such as Tellabs Inc. and Verizon Communications Inc.

It's also one of the reasons the company's stock was trading at more than $4.60 a share, up from $2 per share in the beginning of the year.

With a market capitalization of just $454 million, MRV is puny in comparison to multibillion dollar router rivals such as Cisco Systems Inc. and Lucent Technologies. It's also been a money loser since 1997.

But MRV's Luminent division has managed to corner the market for a type of device that brings fiber-optic networks to buildings (so-called FYI'P, or "fiber to the premises," components.) Specifically, Luminent has a market share topping 90 percent in devices called triplexers, selling to Tellabs, Verizon and Motorola Inc. for their next-generation fiber-optic networks.

And there's a big market for the devices.

Telecom carriers are trying to roll out video services as fast as possible in order to compete with broadband services and cable companies. Those are the networks that promise to transmit voice, video and data--the "triple play"--faster then traditional broadband.

"Carriers need to upgrade to the next-gen networks in order to deploy triple play," said David Kang, analyst at Roth Capital Partners, in a recent research note. "Not trying to sound too dramatic, but in essence the triple play is their last hope of survival."

Driven by this furious buying, Luminent's revenues increased 10 percent last year to more than $50 million. The company reported a significant backlog in orders, and forecast a 30 percent revenue boost in optical components this year.

Now, the company is estimating that revenues for the first quarter of 2006 will be in the range of $71 million to $75 million, up from $62 million for the same period a year ago. Those gains are also forecast to cut losses to the range of 3 cents to 4 cents per share, compared to 6 cents per share for the year-ago quarter.

"Luminent expects to continue as the dominant provider of FITP components to Tellabs and Motorola," said Tim Savageaux, an analyst with Merriman Curhan Ford & Co. who like Kang has a buy rating on the stock.

The analysts are high on the company despite a history of losses going back almost a decade. That's partly because its cost of revenues remains high due to its extreme focus on developing products and enhancing existing ones; the company spent $26 million last year on product development and engineering. It also spends heavily on sales and marketing. However, there is little worry of a cash flow problem.

The company executed a private placement in March, selling almost 20 million shares to as-yet-unnamed institutional investors for $3.75 per share, a 15 percent premium over the share price at the time. That raised about $70 million, which the company plans to use for working capital and general corporate purposes. Company executives declined to comment, citing a quiet period surrounding the private placement.

In part, the company's fortunes have followed global trends. In the late 1990s and early 2000s, it slumped along with most telecom equipment stocks as a global recession stalled expansion in the sector. Tragedy struck in September 2001 when Chief Financial Officer Edmund Glaser was aboard the American Airlines flight headed for Los Angeles that hijackers crashed into the World Trade Center.

Through acquisitions and growth, the company has expanded and now has more than 1,300 employees around the world, about 350 of whom work in the U.S. It's also one of the few chip companies that manufactures here, with some optical components designed and fabricated in California.

The company is also international in its sales. About 75 percent of MRV's revenues came from overseas last year, mostly from customers in Europe. That's because Europe was the first to adopt overlay networks, which are literally laid over existing networks.

"This concept has been widely accepted in Europe," said Chief Executive Noam Lotan, who expects U.S. sales to pick up soon.

YEAR (Dec.31)                       2005          2004

Revenue (millions)                  $284          $272
Total Expenses (millions)            292           279
Operating Income (millions)         -8.7          -7.2
Net Income (millions)              -16.3         -10.7
Earnings Per Share                -$0.16         -0.10

SUMMARY

Business: Telecom and optical equipment
Headquarters: Chatsworth
CEO: Noam Lotan
Market Cap: $454 million Dividend Yield: N/A
Total Liabilities: $148 million P/E Ratio: N/A
Long-Term Debt: $23 million