" 3Com Down On Comments From Deutsche Morgan Grenfell, DLJ"
(Mang's note : The whole article seems to sound positive to me or I must have gone crazy !)
Dow Jones Newswires -- May 7, 1998
By Joelle Tessler
NEW YORK (Dow Jones)--3Com Corp. (COMS) shares fell nearly 7%
on heavy volume Thursday on renewed concerns about the company's
inventory levels and after Deutsche Morgan Grenfell Inc. analyst Paul
Weinstein cut his earnings estimates for the networking equipment maker.
3Com in mid-March reported disappointing earnings for its fiscal third
quarter ended in February. But analysts and company officials have said
since then that the outlook is brightening because 3Com has reduced excess
channel inventories in its three main product lines: modems, adapters cards
and systems products, which include Ethernet switches and modem
systems.
The company has also put in place a new business model that calls for
lower gross margins as well as lower expenses.
But one portfolio manager, Jeff Matthews of RAM Partners, aid he has
heard 3Com may still be struggling with its channel inventory levels,
particularly for modems.
3Com's shares were recently down 2 9/32, or 6.6%, at 32 1/8 on Nasdaq
volume of 25.6 million, compared with a daily average of 6.9 million.
Weinstein of Deutsche Morgan added to the concerns about 3Com's
inventory levels by saying in a research note Thursday that a meeting with
3Com Chief Financial Officer Christopher Paisley "reflected incremental
uncertainty on modems and on gross margin recovery potential in the near
term."
Weinstein's note, from the Networld + InterOp networking conference in
Las Vegas this week, said the company is "still not sure if sales out of the
channel will be up in May, but sales in (the channel) should be up given
holding back of shipments to clear inventory last quarter."
The analyst also said it is tough to get a handle on 3Com's modem line and
noted that slow deployment of the new standards-based 56K modems by
Internet service providers could result in "a less favorable" mix in terms of
selling prices and "uncertainty that sales can be up quarter-to-quarter."
Although pricing is challenging in systems products is challenging, Weinstein
said, unit volumes look good and an easy comparison should lead to
sequential growth in this product line for the fourth quarter.
3Com's adapter business is healthy and should remain so, he said, adding
that "margins are likely to rise given cost reductions."
Finally, he said, despite high channel inventories in 3Com's remote access
products, "products are now selling well and should be up sequentially."
Still, Weinstein said he is less confident that 3Com's gross margins can rise
as much as he had hoped, "given pricing pressure and management of
inventory on balance sheet," although he believes expenses will be down
sequentially.
The analyst - who pointed out that his numbers were at the high end of Wall
Street views - cut his earnings estimates on 3Com to 16 cents a share from
23 cents for the fiscal fourth quarter, to 66 cents from 73 cents for fiscal
1998 and to $1.59 from $1.94 for fiscal 1999.
These numbers compare with earnings of 12 cents a share in the fiscal 1997
fourth quarter ended in May and $1.41 for the full year.
3Com reported earnings of 2 cents a share, excluding a gain, for its fiscal
third quarter, versus 50 cents a year earlier.
Weinstein's comments came just a day after Donaldson Lufkin & Jenrette
Securities Corp. analyst Stephen Koffler put out a research note stating that
he came away from a meeting with 3Com's management "positive about
both modems and more so adapter cards."
Koffler said the adapter-card business appears to be poised for sequential
revenue growth in the May quarter, while the modem business should be
"no worse than flat sequentially, and may actually show small sequential
gains."
He said the new 56K modems should improve overall average selling
prices, although some industry sources have indicated that the the new V.90
standard "is not yet driving acceleration of revenue in the industry."
-Joelle Tessler; 201-938-5285 |
