3Com 2nd-Qtr Profit Is Little Changed as Sales Fall (Update2)
(Adds warning, details starting in 1st paragraph.)
Bloomberg - 12/21/99, 18:39
Santa Clara, California, Dec. 21 (Bloomberg) -- 3Com Corp.,
the No. 2 computer-networking equipment maker, said fiscal second-
quarter earnings were little changed and warned that third-
quarter profit will be less than expected as customers delay
purchases because of Year 2000 concerns.
3Com shares fell as much as 15 percent on the news. Profit
from operations in the period ended Nov. 26 fell to
$130.9 million, or 37 cents a share, from $133.4 million, or 36
cents, a year ago. Revenue fell 4.3 percent to $1.47 billion from
$1.54 billion. Analysts expected revenue of about $1.49 billion.
The sales shortfall and third-quarter warning come as 3Com
prepares to spin off its Palm Inc. electronic-organizer unit next
year to improve its focus on its main networking-equipment
business. Second-quarter revenue from Palm climbed 77 percent,
the only part of 3Com's business to increase from a year ago.
''My biggest criticism of 3Com has been that the company is
a bunch of different product lines in search of an overarching
strategy,'' said Paul Sagawa, an analyst at Sanford C. Bernstein
& Co. who rates 3Com an ''outperform.''
Shares of Santa Clara, California-based 3Com rose 4 1/4 to
53 1/8 on the Nasdaq Stock Market, their highest close since
October 1997. They traded as low as 45 3/16 after the earnings
were released.
The stock had risen 95 percent since Sept. 13, when 3Com
said it planned to spin off Palm after an IPO.
Warning
Chief Financial Officer Chris Paisley said on a conference
call that sales and profit in the quarter ending in February will
be ''comparable'' to the year-earlier quarter. He said 3Com is
being hurt partially by business customers delaying purchases to
ensure that computer systems function after the Year 2000 date
change.
''Any lingering Y2K concerns could cause customers to
further delay purchasing,'' he said. Paisley, 46, who's held the
CFO position since he joined 3Com in 1985, said today that he
plans to retire from the company next summer.
Profit in the third quarter was expected to rise to 32 cents
a share from 24 cents a year earlier, according to a First
Call/Thomson Financial poll of analysts.
Sales Decline
Second-quarter sales of network systems, which include data-
traffic switches and computer hubs, fell 12 percent from a year
ago to $593.2 million. Revenue from personal connectivity
products, including modems and network-adapter cards, fell 14
percent to $620.9 million.
Revenue from Palm, the No. 1 electronic-organizer maker,
rose to $260.9 million.
Including an investment gain and a charge for corporate
realignment in the most recent quarter, net income was
$177.3 million, or 51 cents a share. A year ago, merger and real-
estate related charges resulted in net income of $132.9 million,
or 36 cents a share.
3Com was expected to earn 34 cents a share before gains and
charges in the recent quarter, the average estimate of analysts
polled by First Call/Thomson Financial. Unofficial estimates
published on the Internet ranged as high as 39 cents a share.
The company said it spent $149 million to buy back its stock
during the quarter.
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