SANTA CLARA, Calif., March 24 (Reuters) - 3Com Corp. said
on Tuesday it was hurt in the third quarter by falling prices
and slowing demand for its computer networking gear, but has
finished taking the painful steps necessary to report stronger
performance in coming quarters.
"We finally have reached a point where the channel
inventory problems of recent quarters are behind us," said Eric
Benhamou, 3Com's chief executive officer. "We have no more
hurdles to cross before we enjoy strong improvement of our
operating performance for the next few quarters."
After the market closed, 3Com, the second-biggest maker of
computer networking gear, said its profit from operations fell
96 percent, much more than Wall Street expected, on falling
prices and weaker-than-expected demand.
For the past two quarters, 3Com's resellers and
distributors also have had a huge backlog of unsold 3Com
products. 3Com had deliberately slowed shipments to its
redistribution channels so that its wholeseller could burn off
the inventory.
In a conference call with analysts, 3Com said its sales to
resellers were roughly in line with the resellers' sales to the
final customers -- an improvement compared with recent quarters.
"To the best of our knowledge, we believe sales out (of the
channel) this quarter, measured in dollars, were in the range
of $1.37 billion to $1.4 billion," said Chris Paisley, 3Com's
chief financial officer.
Still, 3Com faced big declines in almost all product lines
because of weak demand and falling prices for networking gear.
The company said sales of its systems -- which include its core
products of hubs and switches -- fell 13 percent in the third
quarter to $549.9 million from the same quarter a year ago.
Sales of client access products -- which include modems --
fell 16 percent to $700.3 million in the third quarter.
Gross margins, a key measure of how much money a company
makes on each dollar of sales, fell to 43.4 percent in the
quarter, reflecting the lower prices.
3Com executives also disclosed a long-promised revised
financial model for the next few years. The company said it
expects its long-term gross margin to hover in the range of
about 45.5 percent to 47 percent, down from 48 percent to 50
percent in recent quarters.
To compensate for the lower gross margins, the company will
lower operating costs, as a percentage of sales, to a range of
27.5 percent to 29.5 percent, 3Com executives said. |
