We achieved our 3.3% yield this week thanks to MRV Communications’ (Nasdaq: MRVC) dramatic 42% surge last week and biotechnology company Celgene (Nasdaq: CELG), which followed its 15% rise the previous week with a 19% increase. The important weekly publication “Baron’s” devoted its lead story this week to the war on cancer, which kills 500,000 Americans and causes financial damage of $180 billion every year. Celgene is one of many companies trying to develop drugs to fight cancer. The rise in the share follows the publication of the positive results of clinical trials and the company’s announcement last Friday that it had signed a cooperation agreement with pharmaceutical giant Pharmacia (NYSE: PHA) for continuing the trials.
More than a quarter (26%) of MRV’s climb was registered last Friday. The cause of the rise on a huge 8 million-share volume is still unclear. The company received approval from the US Internal Revenue Service (IRS) to distribute Luminent (Nasdaq: LMNE) shares, and made an announcement to that effect on Thursday morning. Luminent shot up 26% on Friday.
Merrill Lynch published an updated survey of companies selling optical components for the communications market on Friday. Perhaps it was this report that boosted MRV and Luminent. Merrill Lynch expects Luminent’s sales, which totaled $124 million in 2000, to reach $208 million in 2001 and forecasts company sales of $272 million in 2002.
Luminent focuses on the metro and access markets; the company is virtually the only supplier of both active and passive optical components. This explains the company’s high growth rates, despite the troubles of its communications equipment manufacturing customers, such as Cisco (Nasdaq: CSCO), Marconi (LSE: MONI), JDS Uniphase (Nasdaq: JDSU), and others. Every holder of an MRV share will receive 1.77 Luminent shares within a few months. If Luminent’s business continues to prosper, investors will no doubt hurry to accumulate MRV shares.
Furthermore, many analysts expect a renewed window of opportunity for Nasdaq issues very shortly. MRV is ready to seize the opportunity, as it has already submitted a prospectus for the IPO of Optical Access, a company which is already successful in the market for wireless access to metro networks. After its issue, its shares will also be distributed tax-free to MRV shareholders.
Last Thursday, Marvell Technology (Nasdaq: MRVL) published its financial report for the quarter ending in April. The report was the first in which its Galileo acquisition has been fully consolidated. In this case, the investors put the cart before the horse and pumped the Marvell share up 200% in the six weeks preceding publication of the report. On Friday, it lost its momentum and fell slightly, despite an impressive list of recommendations from Lehman Brothers, JP Morgan Chase & Co., and Goldman Sachs. Marvell met the analysts’ expectations with sales of $64 million and a small, $0.04 per-share profit. The surprise in the report was Marvell’s forecast of similar sales in the second quarter, while all its competitors, such as Broadcom (Nasdaq: BRCM) and PMC Sierra (Nasdaq: PMCS), told the analysts their sales would continue to fall.
A successful combination of Galileo’s communications chips and Marvell’s physical layer made the merger a prosperous one, reflected in the company’s control of 75% of the Gigabit Ethernet market, for example. This rapid momentum is expected to continue in the second half of the year, with ever-increasing orders for the Horizon, Discovery, GalNet-2, GalNet-3, and Gigabit PHY product families. Keep in mind that 45% of Marvell’s revenue still comes from data storage, which has been affected by lower computer sales to large organizations. In time, part of this business will be replaced by rapidly growing communications chip sales, which will add to Marvell’s potential. We will wait for a lower share price before reentering the share.
The above recommendations were made by a person/s working in the investment industry, who may hold positions in securities mentioned in the column. This column should not be taken as advice to buy, sell or continue to hold any securities, and anyone acting on the advice of this column does so at his or her own risk.
Published by Israel's Business Arena on May 22, 2001