3Com Offers Encouraging Report
On Efforts to Cut Its Inventories
An INTERACTIVE JOURNAL News Roundup
3Com Corp. reported net income for its latest period Tuesday that trailed analysts' expectations, but said it had succeeded in a closely-watched effort to reduce inventories.
The Santa Clara, Calif., maker of computer hardware reported net income for the third quarter ended March 1 of $13.9 million, or 4 cents a diluted share, compared with $179.1 million, or 55 cents a diluted share, in the same period a year ago. The latest results included a $9.9 million pretax gain from 3Com's merger with U.S. Robotics Inc.; without that gain, net income was $7.4 million, or 2 cents a share. That trailed the consensus estimate of analysts surveyed by First Call for 14 cents a share.
Revenue, meanwhile, slipped to $1.25 billion from $1.46 billion in the same period a year ago.
Company Profile: 3Com
While the results trailed expectations, analysts had emphasized that 3Com's most important task by far for the quarter was reducing channel inventories -- products that have been shipped to distributors but haven't been sold to the end user -- to be in line with targets that the company set for itself late last year. Meeting that goal, analysts agreed, was worth sacrificing sales target and near-term performance.
On Tuesday, 3Com said it had succeeded in reducing those inventories.
"Converging on our revised channel inventory model and reducing expenses were our primary objectives this quarter," said Eric Benhamou, 3Com's chairman and chief executive officer. "I am pleased we were able to meet both of these goals and still post a modest sequential increase in both sales and earnings."
3Com reported revenue of $1.22 billion in its second quarter.
Differing opinions about how 3Com's inventory-reduction efforts would fare had left earnings projections all over the map, with recent estimates ranging from a loss of seven cents a share to earnings of 26 cents a share.
3Com first began to address its inventory problem late last year when it decided to curb product shipments in order to swallow much of its inflated inventories. As a result, the company posted net income of four cents a share for its fiscal second quarter, well below the 50-cent profit, excluding charges, of a year earlier.
The new model introduced by the company called for channel inventories of four to six weeks for adapter cards, or NICs; six to eight weeks for modems and five to seven weeks for systems products, which include Ethernet switches and modem systems. Under the old model, the company had six to 10 weeks of NICs, and eight to 12 weeks of both modems and systems products, in the channel.
Shares of 3Com rose $2.125 to $37.25 on the Nasdaq Stock Market Tuesday. The results were released after the close of trading.
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