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Investor Presentation ROTH 2007 New York Conference Connectivity Unlimited™
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Page 1: MRV-Roth Conference Presentation 8 30 07 Final …media.corporate-ir.net/media_files/irol/10/103858/Roth Conference... · This presentation contains forward-looking statements within

Connectivity Unlimited™

Investor PresentationROTH 2007 New York Conference

Connectivity Unlimited™

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Connectivity Unlimited™

Forward-Looking Statements

This presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and is subject to the safe harbor created by that section. These forward-looking statements include statements by MRV’s management team relating to the competitive environment in 2007 and the Company's expectations of future success in achieving its objectives. Any forward-looking statements in this press release/teleconference/presentation are subject to a number of risks and uncertainties, including the strength of the overall economy and the high technology market in particular, competition, product development efforts, and acceptance of MRV Communications’ current and future products. Actual results could differ materially from those projected in our forward-looking statements. For further information regarding risks and uncertainties associated with MRV’s business, please refer to the “Management’s Discussion and Analysis of Results of Operations and Financial Condition” and “Risk Factors” sections of MRV’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting MRV’s investor relations department or at MRV’s investor relations website at http://ir.mrv.com.

All information in this presentation is as of September 5, 2007. MRV undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in MRV’s expectations.

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Connectivity Unlimited™

Important Information Regarding Important Information Regarding

NonNon--GAAP Financial MeasuresGAAP Financial Measures

During this presentation references to financial measures of MRVDuring this presentation references to financial measures of MRV will will include references to noninclude references to non--GAAP financial measures for the periods GAAP financial measures for the periods provided. These nonprovided. These non--GAAP financial measures exclude the nonGAAP financial measures exclude the non--cash cash shareshare--based compensation expense as a result of the adoption of SFAS based compensation expense as a result of the adoption of SFAS No. 123(R) on January 1, 2006 and impairments of purchased intanNo. 123(R) on January 1, 2006 and impairments of purchased intangible gible assets. Prior period amounts have not been restated to include assets. Prior period amounts have not been restated to include shareshare--based compensation expense, as permitted by SFAS No. 123(R). A based compensation expense, as permitted by SFAS No. 123(R). A reconciliation between GAAP and nonreconciliation between GAAP and non--GAAP financial information is GAAP financial information is available on the MRV website at ir.mrv.com.available on the MRV website at ir.mrv.com.

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Connectivity Unlimited™

Highlights

• Fast growing market opportunities– Metro Ethernet– Data Center / Lab Infrastructure– Fiber to the Home– 10gb/s Transceivers

• Solid Revenue Growth– Q2’07 consolidated revenue up 17% year-over-year– FY‘06 consolidated revenue up 26% year-over-year

• Closed Fiberxon Inc. Acquisition On July 1, 2007– Combination of Fiberxon and Luminent creates one of the largest, most

comprehensive manufacturers of optical transceivers for telecommunications networks

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Connectivity Unlimited™

$239M

$272M

$284M

$356M

$200

$225

$250

$275

$300

$325

$350

Millions

2003 A 2004 A 2005 A 2006 E

Strong Revenue Growth

Annual Revenue 2003 – 2006

$100

$110

$120

$130

$140

$150

$160

$170

$180

$190

$200

Millions

FH 2006 FH 2007

17% Growth

17% Growth

Revenue FH06 vs. FH07

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Connectivity Unlimited™

(Luminent & Fiberxon Inc. Combined Company)

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Connectivity Unlimited™

Source Photonics - Highlights

• Overview– Key facilities in California, Taiwan, and China– ~1600 employees primarily in China and Taiwan based manufacturing facilities,

corporate headquarters in California, and a worldwide sales force through regional offices and distribution partners

– Cost efficient company with high technology and R&D capability– Global customer base and support services

• Leading product line of PON-related products for FTTP

• Broad portfolio of transceivers covering Enterprise, Access, and Metro Area Networks

& =

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Connectivity Unlimited™

Global Presence, Global Scale

San Jose, CASales office Sales offices

Beijing, Shanghai

Los Angeles, CAHeadquarters

Sales offices, North AmericaLA, Dallas, Raleigh, Boston

LondonSales office

Hsin-Chu, TaiwanSales office,Factory

ShanghaiSales office

Contract Manufacturers, ChinaGuangzhou, Fuzhou, Nimbo

R&D Centers, Factories, & Sales OfficesChengdu & Shenzhen

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Connectivity Unlimited™

Global Customer Base

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Connectivity Unlimited™

WDM SFP TransceiversMetro Rings

Bi-directional SFPOLT Head end

SFF Diplexer TransceiversDigital ONT (IPTV)

Increasing Integration and Functionality

Diplexer & Triplexer Optical Blocks

Current FTTP Product Line

ITR/ITC/ITDTriplexer transceiversWith video overlay

GEPONGPON

BPONGPON

GEPONGPON

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Connectivity Unlimited™

Leading FTTP Market Position

0

5,000,000

10,000,000

15,000,000

20,000,000

Q1 2006 Q3 2006 2007 2008 2010

Homes Passed Triplexers Shipped

Projected*

• Leading supplier of FTTP optical components – First to develop video and data triplexer in 1998– 1st to market; Technology leader– More than 1,300,000 SFU ONT triplexers shipped– 90+% market share of BPON Market– Clear volume leader for GPON transceivers– Strong GEPON presence in Asia

Verizon FiOS Deployment Plan

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Connectivity Unlimited™

Worldwide PON Market Forecast

DATA SOURCES:

Global PON market (000 ports) Shipped

0

500

1,000

1,500

2,000

2,500

3,000

3,500

BPON - BBTrends 60 389 1,026 701 618 614 205 0

EPON - BBTrends 4 33 290 1,902 2,612 2,644 2,992 3,092

GPON - BBTrends 0 1 7 140 381 1,248 2,373 2,791

BPON - Dell'Oro 737 347 344

EPON - Dell'Oro 155 1,304 1,902

GPON - Dell'Oro 21 36 47

2002 2003 2004 2005 2006 2007 2008 2009

EPON

GPON

BPON

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Connectivity Unlimited™

Case Study – Verizon FiOS

• Customer retention • Provides much needed Cable TV services• Ultra-fast broadband connectivity• Significant OPEX savings

Luminent Integrated Triplexer One Per Home

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Connectivity Unlimited™

DWDM XFPs

DWDM SFPsCWDM SFPs

Transceiver Solutions

BiDirectional SFPs

4G FC SFPs

SONET SFPs

GbE SFPs

IP WAN

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Connectivity Unlimited™

Current Transceiver Market Coverage

AccessMetro

CWDM/DWDM

40G

TunableLower Port Cost

High Volume

Higher Port Cost

Specialized Technical

Capabilities

100G

ASPs

BW

Dis

tanc

e P

rodu

ct

SFP

Bidi SFPC/DWDM

SFP

SFP+

XFPTunable XFP

Expansion

Expansion

DWDMXFP

Existing

Development

Enterprise

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Connectivity Unlimited™

0

200

400

600

800

1000

1200

1400

1600

1800

2005

2006

2007

2008

2009

2010

2011

10G

Sal

es

SFP+XFP-EthernetXENPAK/X2/XPAKXFP-SONET300PIN

10G Transceiver Market Projection

300 Pin TDM converting to XFP

XENPAK/X2 converting to XFP and SFP+

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Connectivity Unlimited™

Manufacturing Strategy

US, TW R&DTW wafer fab

LOIC TW

TW & 2 CMs (China)

• Investment in automation • Common test and manufacturing

infrastructure • Statistical process control across

facilities

CM (China)

LOIC TW

LOIC TW

• Taiwan & China in house manufacturing: High mix, low volume

• China CM Model for high volume, low mix products

• Future manufacturing consolidation will lead to further cost improvements

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Connectivity Unlimited™

Source Photonics - Long-Term Vision

• Worldwide leader in PON transceivers– Leverage highest volume and best technologies

• High growth disruptive company in Metro/Access transceivers– Cost efficient company with high technology capability

• Long-term Tier 1 player– Deliver on: Technology innovation, Operation Efficiency, and Customer

Relationship • Financial Excellence

– Strong revenue growth– Long-term target of gross margin in 25% to 30% range – Long-term target of operating cost as a percent of revenue of 15%

& =

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Connectivity Unlimited™

Networking Business

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Connectivity Unlimited™

Networking Business

• Internally developed MRV networking products

• Good gross margin and consistent strong year-over-year growth

• Expanded sales force focused on North America growth

MRVMRVNetworking SegmentNetworking Segment

(820 EEs)(820 EEs)

Network EquipmentNetwork Equipment

(480 EEs)(480 EEs)

Network Integration Network Integration

(340 EEs)(340 EEs)

• Provides both MRV and 3rd party networking products and integration services

• Consistent cash flow and profitability

• Provides access to Tier One carriers in Europe

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Connectivity Unlimited™

Network Equipment - Sample Customers

Leading Products

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Connectivity Unlimited™

Network Equipment - Markets Addressed

Market MRVMRV Product Family Representative Customer

Metro Ethernet Metro Access and Aggregation and Optical Transport (10GE, WDM)

Data Center Management &Control

Out-of-Band Networking (OOBN), Power, Console Sensor and Configuration Management

Defense Various military applications

Page 23: MRV-Roth Conference Presentation 8 30 07 Final …media.corporate-ir.net/media_files/irol/10/103858/Roth Conference... · This presentation contains forward-looking statements within

Connectivity Unlimited™

Worldwide Carrier Ethernet Forecast

According to Ovum-RHK's December 2005 forecast

Worldwide Optical Market (MFG Revenue)$8.4 Billion – 22% Y/Y growth

Double-Digit Growth Rates Expected for Next Two Years

Dell’Oro Group Forecasts Ethernet Switch Market Revenues to Exceed $18 Billion in 2010

WDM Metro growth

Market Opportunities

Page 24: MRV-Roth Conference Presentation 8 30 07 Final …media.corporate-ir.net/media_files/irol/10/103858/Roth Conference... · This presentation contains forward-looking statements within

Connectivity Unlimited™

First to introduce 10Gb Ethernet Demarcation DeviceFirst to run DWDM SFPs over 200 km in the OS9000

eWDM + MPLS + Cross Connect in single platformFirst SDI SFP for Video Optical Transport

First Optical Performance Monitoring in Ethernet AccessFirst WDM Optical Ethernet Access

First MPLS WDM Network deployment in the worldFirst all optical wireless

First 802.3AH Pluggable Optics SystemFirst integration of 802.3AH over fiber and VDSL solution

First ILEC Optical Ethernet DeploymentFirst 16 CWDM Optical Transport system

First Metro Ethernet network deploymentFirst hardware-based Linux router

First Gigabit Ethernet to 75 kmFirst with 10/100 Dual Speed LAN switch

Founded as a Laser Diode Manufacturer

19 Years of Optical Innovation

2007 20062005

20042002

2000199819951992

1988

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Connectivity Unlimited™

Engineering Excellence and Industry Recognition

MRV won MRV won ““Best of Show for TechnologyBest of Show for Technology”” where the Optiswitch 930, the first where the Optiswitch 930, the first 10Gb Ethernet demarcation device, was voted NXTcomm10Gb Ethernet demarcation device, was voted NXTcomm’’s s ““Best of Show for Best of Show for Optical Innovation in Optical Networking.Optical Innovation in Optical Networking.””

MRV was named MRV was named ““World Metro Demarcation Market LeaderWorld Metro Demarcation Market Leader”” by Frost & Sullivan by Frost & Sullivan based on recommendation of their analysts who track competitor rbased on recommendation of their analysts who track competitor revenue, evenue, market share, and market and technology innovation. market share, and market and technology innovation.

Frost & Sullivan: Frost & Sullivan: ““In the emerging demarc segment, MRV has truly established In the emerging demarc segment, MRV has truly established itself with the range of features supported on its products, an itself with the range of features supported on its products, an impressive impressive customer base, and a successful strategy.customer base, and a successful strategy.””

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Connectivity Unlimited™

Case Study – Metro Ethernet (Time Warner)

Problem• Xspedius (TWT) Communications provides services in 20 states, 3,500 route miles of fiber, 600 On-Net

buildings and over 150 locations• Xspedius (TWT) targets small- to medium-size business customers• Services needed: Basic, Premium, Dedicated• MRV Communications provides customer premises equipment for the Xspedius network under a new

reseller agreement with Lucent announced on June 5th 2006

Page 27: MRV-Roth Conference Presentation 8 30 07 Final …media.corporate-ir.net/media_files/irol/10/103858/Roth Conference... · This presentation contains forward-looking statements within

Connectivity Unlimited™

Case Study – Metro Ethernet for Emerging Carriers

Metro EthernetNetwork

CPE

IP/SNMP

NOC

Aggregation

Total Solution• Customer Access• Optical Transport• Service-Aware Aggregation

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Connectivity Unlimited™

MRV Data Center Successes

MRV’s Console/Power Solution

Centralized access

Secure remote access

Remote diagnostics

Authentication/Logging

Power management for cost savings

Tellme Networks (acquired by Microsoft)

World’s largest VoiceXML Network

Page 29: MRV-Roth Conference Presentation 8 30 07 Final …media.corporate-ir.net/media_files/irol/10/103858/Roth Conference... · This presentation contains forward-looking statements within

Connectivity Unlimited™

Emerging Markets for Console/Power Solutions

• Government – DoD Security Certification (FIPS140-2)– DoD Testing (JTIC)

• Telcos– High End NEBS Certifications– Sensor/Alarm Capabilities– Wireless modem access– Security

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Connectivity Unlimited™

Network Integration & Distribution

• Consistent Cash FlowCash Flow and ProfitabilityProfitability

• Access to Tier One Carriers in Europe

• Enhances MRVMRV Brand Name

Strong European Strong European Systems integration Systems integration Presence in EuropePresence in Europe

SwedenSwedenGermanyGermanyFranceFranceBelgiumBelgiumSwitzerlandSwitzerlandUKUKItalyItalyIsraelIsraelFinlandFinlandNorwayNorwayDenmarkDenmarkNetherlandsNetherlandsRussiaRussiaSpainSpainHungaryHungary

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Financial Information

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Q2Q2’’0707 Q3Q3’’07E07ETotal Revenue $102M $112M-$118M*

Optical ComponentRevenue

$27M $40M-$44M*

Non-GAAP EPS $(0.01) $(0.02) - $0.01

Q3’07E Guidance

*Q3’07E will include a full quarter of revenue contribution from Fiberxon

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Q2 ’07 Performance (Non-GAAP)

(in 000s - Non-GAAP) Q2 '06 Q3 '06 Q4 '06 Q1 '07 Q2 '07

Revenue 86,965 89,616 102,646 89,679 101,962

Gross Profit 26,859 28,737 31,384 28,401 29,979 Gross Margin 31% 32% 31% 32% 29%

R&D 6,488 7,141 7,008 7,116 6,665 SG&A 21,282 20,402 23,491 22,190 23,477

Total OPEX 27,770 27,543 30,499 29,306 30,142

Operating Income (Loss) (911) 1,194 885 (905) (163)

Net Income (Loss) (1,716) 1,078 1,559 (1,392) (1,641)

EPS (0.01) 0.01 0.01 (0.01) (0.01)

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Connectivity Unlimited™

Q2 ’07 Key Balance Sheet Measures

(1) Includes cash and cash equivalents, time deposits and short- and long-term marketable securities

(2) Presented in terms of days

(3) Includes short-term obligations and current portion of long-term debt

(in 000s) Q2 '06 Q3 '06 Q4 '06 Q1 '07 Q2 '07

Cash (1) 121,288 116,759 118,407 116,726 107,435

Accounts Receivable 84,914 87,513 95,244 84,956 98,264 Days Sales Outstanding (2) 89 89 84 86 88

Inventory 65,428 70,399 61,361 65,215 68,800 Days in Inventory (2) 99 105 78 97 87

Short-Term Obligations (3) 21,656 23,352 26,289 21,565 22,765 Convertible Notes 23,000 23,000 23,000 23,000 23,000

Headcount ~ 1,500 ~ 1,430 ~ 1,450 ~ 1,425 ~ 1,425


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