3Com story in Barron's
Here is the story from this Monday's Barron's (The Trader):
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One technology company the Nasdaq has left in the dust is 3Com. Unlike its brethren, the company's shares reached a peak of 51 1/8 in December, only to fall to 20 by April. So far this year, the shares are off 24% to 33 3/8, leaving them at relatively modest multiples -- about 25 times expected May 2000 earnings and 21 times expected May 2001 earnings.
3Com makes modems and networking equipment along with the popular Palm Pilot. Cisco Systems, which also makes networking equipment, roared to new highs last week, closing Friday at 83 7/16, and is up 75% so far this year. "I think 3Com is a $45 stock trading at $33," says Jeff Pittsburg of Pittsburg Institutional, a Great Neck, New York-based analytics shop.
One of the top reasons 3Com may pop is because it may become an acquisition target after it spins off its Palm Pilot unit early next year. Alcatel, the French telecommunications company, is rumored to be looking at 3Com, says Jay Amore of Amore Capital, also of Great Neck. The French firm could use 3Com's technology and could readily absorb a company of 3Com's size (a market cap of $11.5 billion). Separately, Alcatel has talked with Newbridge Networks, a Canadian telecom networking company. A Newbridge spokesman told Dow Jones Newswires the discussions weren't related to a takeover, however.
But even if a deal doesn't materialize, there are a few events on the horizon which should keep 3Com's shares moving up. First and foremost, in September the company announced plans to sell up to 20% of its Palm Pilot business to the public early next year. Up to six months after the offering, the remaining shares in Palm will be given to existing 3Com shareholders. The spinoff should help investors and analysts better value the different parts of this company.
The move comes at a good time for Palm. While sales of 3Com's networking equipment rose 9% in the first fiscal quarter to $674.2 million, and sales of network interface cards and modems fell 19% to $539 million, sales of hand-held computing products, including Palm products, jumped 50% to $174.2 million.
The unit just launched its newest edition, the Palm VII, which offers wireless e-mail and limited Internet services in addition to its traditional abilities to store phone numbers, addresses and schedules. Palm also has started licensing its operating system to others. In October, 3Com announced a partnership with Symbian, a joint venture of the wireless-phone makers, including Nokia and Motorola, to create a de facto standard for wireless Internet access using the Palm software.
Even 3Com's main modem and networking business has shown some signs of life after dragging the company down for much of the past year. 3Com's acquisition of U.S. Robotics for $6.6 billion in 1997 turned out to be quite a misstep. U.S. Robotics was purchased just as the analog modem business had hit its peak, explains Pittsburg. 3Com has since restructured and moved its focus to cable, digital subscriber lines (DSL) and wireless technologies that provide high-speed Internet access.
"Every computer in the world is linked either through a network or a modem," says Amore. And if an acquisition happens to occur, all the better. |
