Just some random notes to myself from the 10Q
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The Company derives a portion of its sales from original
equipment manufacture (OEM) partners including PC companies
who bundle 3Com network interface cards and modems, and
incorporate chip-sets into their products. The Company
believes that future sales growth of these products is
dependent, in part, on the Company's ability to strengthen
relationships and increase business with OEM partners. OEM
sales are characterized as having lower average selling prices
and gross margins. Consequently, the Company's overall gross
margin percentage may be adversely impacted if OEM sales
become a larger percentage of the Company's business. Certain
OEMs in the PC industry are integrating communication
subsystems on the PC motherboard. If such integration becomes
a trend, the Company's future sales growth may be adversely impacted.
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Days sales outstanding in receivables decreased to 68 days at November
30, 1997, compared to 74 days at May 31, 1997 due to a lower
concentration of sales in the third month of the quarter.
Inventory levels at November 30, 1997 increased $226.6
million, of which $197.7 million was finished goods, from the
prior fiscal year-end to $628.9 million. Inventory turnover
was 5.0 turns at November 30, 1997, compared to 7.5 turns at
May 31, 1997 primarily as a result of the increase in the
Company's inventory due to reduced sales levels, as previously
discussed.
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During the second quarter of fiscal 1998, sales in the
Asia Pacific region compared to the second quarter of fiscal
1997 and the first quarter of fiscal 1998 decreased five
percent and 32 percent, respectively. Historically, the Asia
Pacific region had been a high growth region for the
networking industry and the Company. During the second
quarter of fiscal 1998, however, several Asian countries
experienced a weakening of their local currencies and turmoil
in their financial markets and institutions, which the Company
believes adversely affected financial results for the second
quarter of fiscal 1998.
An additional factor affecting second quarter results was
an apparent slowdown in the growth of the networking industry.
Recent reports by industry sources indicated that the
networking industry worldwide grew by less than 20 percent
during 1997, well below historical growth rates.
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