CBS MarketWatch: NNÿÿ aÿÿÿÿ " Buy ".
Cristinziano: I have a "buy" on Cisco; Newbridge
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Networks (NN: news, msgs), which is being acquired
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ by Alacatel (ALA: news, msgs); Citrix (CTXS: news,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ msgs), a software company that is in the networking
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ arena; Viaset (VSAT: news, msgs), a satellite
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ equipment maker; and Scientific-Atlanta (SFA: news,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ msgs).
Analyst Corner
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Is 3Com's stock spinning out
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ of orbit?
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Analyst says shares are too high for near-term
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ outlook
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ By Colleen Bazdarich, CBS
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ MarketWatch
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Last Update: 12:41 PM ET Mar 1, 2000
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Personal Finance
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ News
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Join the discussion
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ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ NEW YORK (CBSMW) -- Investor excitement over the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ IPO of its Palm spinoff has sent 3Com's shares out of
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ orbit, pushing them as high as 119 3/4 in Wednesday
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ morning trading.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ But where will the tech giant be
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ without its shining star? Analyst
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Michael Cristinziano of Gerard
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Klauer Mattison & Co. says that
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ with the company playing catch-up to
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Cisco in many key areas, the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ company's investors may be heading
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ down to Earth sometime soon.ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ With 3Com valuations so high and the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ rest of the networking sector growing
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ so rapidly, Cristinziano believes that
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ for the near term there are some better
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ "buys" outside this current hot stock.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ He does, however, see long-term
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ growth potential for 3Com as its
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ smaller, newer products launch.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ CBSMW: Now that Palm has split
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ off, what does this mean for
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ 3Com's fundamentals?
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Cristinziano: Well, that is a good
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ question. The company is a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ well-known technology player and in
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ many categories of networking is
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ number two to only Cisco (CSCO:
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ news, msgs), and in fact is number
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ one in some categories. The problem
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ though is that the company has lost the war to Cisco in
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ many key categories in which it is number two, and the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ones in which it dominates are not only the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ slower-growing ones, but sometimes, in case of Nixon
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Modems, the declining segments of networking.ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ The dominance
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ of Cisco has
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ worked against
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ 3Com (COMS:
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ news, msgs), and
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ the fact that
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ (3Com has) been
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ strong in the less
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ attractive categories has been bad for 3Com.ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ So when you look at 3Com without Palm (PALM: news,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ msgs), I no longer see growth for the near term. Nixon
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ modems are on the decline, and the systems business
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ should be growing, but if you look at the most recent
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ quarter, it grew only a dismal 1 percent. They had some
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ reasons, having one product late, but this is just such a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ recurring theme at 3Com that I think the near-term
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ outlook is not that rosy without Palm. That's near term.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ If the stock gets really cheap that doesn't mean it's not an
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ opportunity for the long haul.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ CBSMW: So what do you see long term?
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Cristinziano: For the long haul the company needs to
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ execute on some of its new initiatives. Those include
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ multi-faceted areas of growth, but it's early in the game
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ and it's not clear that they are going to execute and be a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ leading player in those areas. Those areas include things
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ like broadband connectivity and home networking --
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ they have brand and retail distribution that should help
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ in those areas.ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Another area is what we call "un-PBX
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ." The un-PBX is the new-world
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ answer to the old-world PBX -- like
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ running voice into corporate network
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ over LAN end-using software that
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ 3Com would provide to connect calls
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ and provide enhanced services,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ including things like unified messaging.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ CBSMW: They are already in all
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ these areas?
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Cristinziano: Yes, they are trying all
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ these areas, it's just that 3Com is very
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ big. Even without Palm, it is nearly $6
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ billion in revenue. Most of this stuff
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ that is contributing to the $6 billion is
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ slow growing, or even declining in
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ some cases. The new stuff is really,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ really small, so even though it may be
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ rapidly growing, it doesn't offset the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ core business that is struggling. But
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ again, that is the near term.ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Over time, if they are successful in the new product
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ areas, then they'll become more of a dominant part of the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ mix and growth will return to 3Com, but I just don't see
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ it within the next few quarters. It will take a longer term
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ perspective and an investor that has more patience than
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ most of Wall Street today to get excited about.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ One of the things I would expect would be smart for
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ 3Com to do is actually use the stock that is so strong
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ now as a result of this Palm deal and make some of their
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ own acquisitions to help renew growth in the company
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ sooner rather than later. We'll wait and see.ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ CBSMW: So you don't have a "buy" on them right
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ now?
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Cristinziano: No, not as a standalone company. The
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ valuation of Palm is very high -- somewhere around 18
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ times (revenue) -- and that is reflected in the 3Com
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ stock. Once they let go of Palm, once those shares are
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ distributed,ÿit will be interesting to see the value placed
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ on it by the market. Only then can we decide whether or
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ not on a valuation basis we should be buying into the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ company.ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ CBSMW: Who do you have your "buys" on in the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ networking area?
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Cristinziano: I have a "buy" on Cisco; Newbridge
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Networks (NN: news, msgs), which is being acquired
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ by Alacatel (ALA: news, msgs); Citrix (CTXS: news,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ msgs), a software company that is in the networking
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ arena; Viaset (VSAT: news, msgs), a satellite
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ equipment maker; and Scientific-Atlanta (SFA: news,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ msgs).
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ CBSMW: What are some of the risks that my
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ long-term investors should be thinking about when
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ getting into these stocks?
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Cristinziano: The biggest risk is really the market
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ itself. If Wall Street loses its fascination with tech
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ stocks, the whole group could suffer. If you look at the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ opportunities in these companies, in terms of top-line
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ growth at a company like Citrix and Cisco, they're both
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ growing their revenues over 50 percent. And Cisco is a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ very big company.ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ So the market for these products is very good and the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ companies are very profitable; I don't think there's a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ problem on the demand side. The question is, what is
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ the stock worth? And the market valuation seems to be
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ at historic high levels right now so if there is a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ downturn in the market all of these companies that have
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ done so well will go down.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ CBSMW: But you think fundamentals are strong for
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ the long term?ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Cristinziano: Yes, for the ones that I like they are. And
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ 3Com for the long term should be able to turn this thing
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ around, I just don't see it happening in the near term.ÿ |
