3Com plans to up buyback by 10 mln shares; Q2 costs seen rising on marketing
[Some comments on this: Last quarter 3Com spent $392 million repurchasing shares at an average of around $25 per share. In spite of this, cash actually increased to $1.7+ billion from previous quarter. This quarter more millions of shares are going to be repurchased (see below). This is a wonderful non-taxable dividend for stockholders that, I think, is not getting enough attention here or anywhere else. If 3Com price remains in the thirties, in a few years there will be no 3Com shares left at this rate of repurchase -- of course, 3Com shares will go considerably higher than the thirties.
The comments of Paisley regarding increased cost in Q2 are so that the analysts keep their estimates conservative and the company again beats them handily. This will set the stage for a nice rally going into the IPO in early 2000.
Kyros]
SANTA CLARA, CA, AFX via NewsEdge Corporation : 3Com Corp executives said they plan to ask the company's board of directors to increase its share buyback plan by up to 10 mln shares, and an aggressive TV marketing campaign that could increase costs.
3Com reported first quarter to August earnings per share of 38 cents, compared with 26 cents in the year earlier period, and analysts' expectations of 24 cents.
The company said first quarter pro forma earnings per share were 33 cents excluding a 23.6 mln usd gain from the sales of investments and a net pre-tax credit of 2.1 mln usd related to the merger with U.S. Robotics Inc last year.
Chief financial officer Chris Paisley said in a conference call with analysts following the results, the company plans to ask its board of directors to increase the number of shares in its share buyback program by 10 mln to 14.8 mln. Also, Paisley said while second quarter costs are expected to rise from first quarter levels of 494.8 mln usd in part because of an aggressive marketing campaign that will include TV advertising and after strict cost controls in the first quarter, and faster than expected attrition in its workforce.
Despite a 2.1 percentage point jump in gross margins to 46.7 pct in the first quarter from the fourth quarter, 3Com still expects gross margins between 46.5 and 48 pct in the year to June 200, Paisley said.
Executives noted that revenues from its Palm Computing Inc rose to 13 pct of overall revenues from around 10 pct in the fourth quarter. They added that costs will probably increase from the spin-off of the PalmPilot maker, as "we have to fill two infrastructures instead of one," Paisley said, but did not comment further on the planned spin-off.
3Com's second quarter to November is traditionally its seasonally strongest, and Paisley said the company "expects that to be the case" for this quarter.
He added if the company will experience any impact from a Year 2000 bug related slowdown, it will take place in the next two quarters.
Paisley reiterated his earlier guidance that second quarter revenues will be lower than the year earlier period as a result of the company's strategy to move away from slow growth areas like modems and network interface cards and third and fourth quarter revenues will grow.
Chairman and chief executive officer Eric Benahamou said revenues from wireless access and broadband products should start contributing to its second quarter revenues, both at its personal connectivity and network systems divisions.
Benhamou said its will start shipping its first wireless access product, the AirConnect, to corporate customers in this quarter, and will announce a broadband DSL deal with two large regional Bell operating companies (RBOCs).
Paisley said the U.S accounted for 55 pct of sales at 764 mln usd, a decline of 5 pct from a year ago, while sales outside of the U.S. rose 4 pct to 622 mln usd in part because of seasonally slow sales in Europe.
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