S&P cuts 3Com corp credit to BB-plus from BBB
(Press release provided by Standard & Poor's)
Tuesday March 21, 3:28 pm Eastern Time
NEW YORK, March 21 - Standard & Poor's today lowered its
corporate credit rating on 3Com Corp. to double-'B'-plus
from triple-'B' following the company's announced plan to
restructure the business.
The downgrade reflects 3Com's near-term product and earnings
transition, as well as its less-certain longer-term position
in higher growth but still emerging markets.
The outlook is stable.
3Com intends to sell its analog modem product line to Accton
Technology of Taiwan and NatSteel Electronics of Singapore;
transition its large enterprise router and switch businesses
operations to Extreme Networks Inc.; and exit its wide-area
network (WAN) business. The modem product line is maturing,
and the company has not leveraged its position in the core
networking market against leader Cisco Systems Inc., Nortel
Networks Inc., and others.
Santa Clara, Calif.-based 3Com's business profile will now be
focused on the ``middle to the edge' of the network. The
product offering of maturing network interface adapter cards
and related products, such as workgroup switches and hubs,
remote access concentrator systems, and wireless services
for telcos and service providers, focuses on building the
company's presence in the emerging markets for cable and
high-speed digital subscriber line (DSL) modems, home
networking, and wireless access products. 3Com expects to
leverage its extensive distribution channels and well-recognized
brand name in these new markets.
Following the company's recent initial public offering of
Palm Inc., the announcement marks a major change in 3Com's
focus. 3Com is expected to face aggressive competition in
these rapidly evolving markets, while the underlying
technologies, customer relationships, and distribution
channels could shift dramatically in coming years. The
company will take a $200 million to $300 million restructuring
charge, of which about $150 million to $200 million is
expected to be in cash. The remaining shares of Palm, the
leading maker of hand-held organizers, will be distributed
to shareholders in the quarter ending in August 2000.
3Com's sales have been flat due to aggressive competition and
mix shifts in the adapter card and PC modem markets,
offsetting some growth in the networking systems sector,
while Palm sales doubled in the fiscal year ended May 1999.
Operating margins have been in the mid-teens percentage
area, and 3Com has $3 billion in net cash excluding proceeds
of the Palm IPO.
The company's realignment should position it to both accelerate
its growth rate and pursue strategic initiatives towards
building its position in its target markets as they expand
in the next several years.
OUTLOOK: STABLE
The company's highly liquid balance sheet, with more than $3
billion in cash and no debt, is expected to support its
operations over the next several years while allowing for
acquisitions to complement its internally developed product
lines.
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