Will 3Com Take Earnings Hit
To Solve Inventory Problem?
By JOELLE TESSLER
Dow Jones Newswires
Second-quarter earnings estimates for 3Com Corp. have
come down notably over the last two weeks amid concerns
that the company has been slowing modem shipments to
reduce distributors' high inventory levels.
But a few analysts are now speculating that the
network-equipment maker could substantially miss even the
revised projections by significantly curbing modem shipments
in the final weeks of the quarter to put the problem behind it.
"We believe that 3Com management could elect to
substantially miss the November quarter in order
to...eliminate the lion's share of modem channel inventory,"
said NationsBanc Montgomery Securities Inc. analyst Al
Tobia.
Hambrecht & Quist analyst Farrokh Billimoria said 3Com
cannot report earnings that are even with or above
first-quarter levels and at the same time meaningfully reduce
channel inventory levels this quarter.
The analyst said he expects the company to report a
sequential revenue and earnings decline for the second
quarter ending in November, noting that he believes 3Com is
focused on cutting modem as well as adapter-card
inventories.
CIBC Oppenheimer & Co. analyst Randall Yuen pointed out,
however, that "no one knows for sure" what the company will
do.
"Some are hoping the company will just dump the entire
November quarter so they can get the inventory issue out of
the way," he said. "Some are saying it could take several
quarters."
"It's up to the company," Mr. Yuen said.
Mr. Tobia earlier cut his second-quarter estimate on 3Com
to 9 cents a share on revenue of $1.45 billion from 53 cents on
revenue of $1.73 billion. He also reduced his full-year
estimates to $1.44 a share from $2.40 for fiscal 1998 and
$2.20 a share from $3.10 for fiscal 1999.
And Mr. Billimoria lowered his second-quarter view to 38
cents a share on revenue of $1.55 billion from 52 cents on
revenue of $1.72 billion. He cut his fiscal 1998 estimate to
$1.74 a share from $2.29.
Comparable year-ago results weren't available, since last
year's numbers don't reflect 3Com's acquisition of U.S.
Robotics. 3Com reported earnings of 48 cents a share on $1.6
billion in sales for the fiscal first quarter ended Aug. 31. These
results exclude a $426 million pretax charge related to the
company's acquisition of U.S. Robotics.
Since Nov. 10, 20 of 34 analysts have lowered their estimates
for the second quarter, with "the more recent revisions deeper
than the earlier ones," said Chuck Hill, director of research at
First Call.
The mean estimate for the quarter has fallen to 44 cents a
share from 53 cents as of the start of Nov. 10. Illustrating the
drop even more dramatically, the estimate range has widened
to between nine cents and 58 cents a share from between 47
cents and 58 cents on Nov. 10, Mr. Hill said.
Since Nov. 10, Mr. Hill said, full-year estimates have also
fallen, to $2.06 a share from $2.30 for fiscal 1998 and to $2.68
a share from $3.02 for fiscal 1999. |
