December 05, 1997, TechInvestor
3Com And Cabletron Plot Recovery Plans
Jeff Caruso
3Com and Cabletron will move forward quickly to get back on track after both companies this week warned of disappointing quarterly financial results.
3Com, which like Cabletron disclosed that revenue and earnings would fall far short of expectations, quickly disclosed plans to address inventory problems in its reseller channel that played into the poor results.
Santa Clara, Calif.-based 3Com said during the next few quarters it will implement an EDI system to monitor inventory levels.
Chief executive officer Eric Benhamou said in a prepared statement the company's hit is just a one-time correction. In addition, 3Com said sales were hurt by weakness in the Asian market and the lack of a set standard in 56-kilobit-per-second modems.
The inventories that U.S. Robotics maintained before its merger with 3Com earlier this year seem to have been "worse than we originally thought," said Noel Lindsay, director at Deutsche Morgan Grenfell Technology Group, adding that resellers may not have been giving 3Com reliable information about their inventories. High inventories can skew sales figures, since resellers will not order more products until they sell what they have in stock, he said.
Companies are tempted to sell their products into the channel, building up inventories, to make their own sales appear greater, said William Becklean, senior vice president at Tucker Anthony.
3Com's disclosure coincided with Cabletron's revelation that it will also have lower-than-expected revenues for the quarter.
Despite the gloomy financial news, Cabletron, in Rochester, N.H., is readying products that could help turn the tide.
Cabletron next week will continue trying to reshape itself into a lower-end equipment supplier by announcing 10/100-megabit-per-second Ethernet switch modules for its products. These include a 26-port module for the MMAC-Plus, which is being renamed the SmartSwitch 9000 to match the rest of its product line. The module sells for $16,995.
Cabletron also is unveiling a 16-port version for the SmartSwitch 6000 that will ship next month for $8,995.
Although Cabletron faces its own obstacles -- including a new CEO and the recent acquisition of Digital Equipment's networking operations -- both 3Com and Cabletron are competing against Cisco, which is finding success at their expense by selling turnkey networking systems.
They're also not targeting the service provider infrastructure as much as San Jose, Calif-based Cisco, and that's where the growth will be, said Roxane Googin, an independent analyst in Jackson, Wyo.
"I think it's interesting that the bidding war for MCI is happening at the same time that these companies are having problems," she said. |
