Here is an interesting article from MSFT Investor, it has some pro's and con's about COMS.
Stalker Eric Dubin
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Eric Dubin seeks companies likely to benefit most
from the race to build or supply the new networked
economy and attempts to buy their shares when
valuations reach annual or historic lows. E-mail Eric
Dubin
Journal: June 19, 1998
Place order to sell VLSI Technology (VLSI), 200
shares at 19 3/4. (order is good until canceled)
Market Comment: 3Com and the next networking
takeover.
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Advisor FYI
I'm not going enter any new buy orders for the Tech Stalker
portfolio this week. As we move through this month, I will
likely deploy some more cash.
But I am entering a sell order for my VLSI Technology (VLSI)
position. I'm fishing for a break-even trade in the face of the
company's earnings report, due July 15, after the market
close. My opinion on where the stock will trade over the next
18 months has not changed one iota. I continue to see a
strong case for the shares hitting $30 or more.
But all along, I have been concerned about the
integrated-circuit maker's quarterly report. The company will
likely continue to see weak sales to companies like
Ericsson (ERICY) as wireless equipment firms position
themselves for uncertain demand in Asia.
Wall Street analysts have been busy reiterating their "buy"
ratings on VLSI this week. In large measure, I agree with the
analysts. But I haven't traded enough while managing the
Tech Stalker portfolio over the past few months and my
performance has suffered.
This sell order is another trolling line. I think the odds of it
executing are better than 50/50. I plan to buy the stock back
if the order executes. If it doesn't execute, so be it. I'm
comfortable holding the position, despite what I expect to be
a rocky July. I expect the stock to begin its rise in the latter
part of 1998.
Details
Quote Detail
1-yr Chart
Advisor FYI
3Com and the circling sharks:
I've received quite a few requests for my take on the merger
activity in the networking sector. I'm therefore going to
comment on 3Com (COMS) and save my review of the
semiconductor segment for my next journal entry.
Finally, after months of rumors, Bay Networks (BAY) was
taken out. Nortel (NT), the Canadian
telecommunications-equipment giant, bought the struggling
#3 networking firm.
The "Big Five" networkers
Sales in Billions
(As of 6/17/98)
Trailing 12-month
Price-to-Sales
Cisco Systems (CSCO)
$7.8
10.48
3Com (COMS)
$5.6
1.57
Bay Networks (BAY)
$2.3
2.82
Cabletron Systems (CS)
$1.4
1.49
Ascend Communications
(ASND)
$1.2
8.06
Quote Detail
1-yr Chart
Quote Detail
1-yr Chart
Quote Detail
1-yr Chart
Quote Detail
1-yr Chart
Salivating, Wall Street is casting its eye toward other
potential take-over targets. Ericsson (ERICY) is rumored to
be an aggressive suitor, eyeing companies like Ascend
Communications (ASND) and 3Com. Ascend's strong
equipment position and customer relations with data
network and telecommunications service providers makes
the company a logical compliment for Ericsson or other
long-rumored suitors like Lucent (LU) or Nokia (NOK/A). But
3Com is cheap.
Even with this week's bounce, 3Com is still trading modestly
over 1.5 times trailing sales. With a suitor lurking, now is as
good a time as any for a merger offer. 3Com's technology
and product mix does not complement Ericsson as strongly
as Ascend's technology and market focus. But 3Com could
be had for a fraction of Ascend's likely takeover value; 3Com
might go for less than 3 times sales, but suitors would be
hard-pressed to win Ascend for anything under 10 times
sales.
Furthermore, many analysts miss the fact that 3Com's
nascent position in alternative computing platforms like the
Palm Pilot is actually an attractive complement to firms like
Ericsson, and especially Nokia. We're still talking about a
small end-market here. But the technology behind Palm
Pilot and devices like it compliment the wireless
communications and computing visions at Nokia and
Ericsson.
Ultimately, I don't know if 3Com is going to be taken over.
But an offer wouldn't surprise me. One thing is certain. The
acquisition scramble by traditional
telecommunications-equipment vendors will continue this
year. Ericsson, Lucent and others have little choice: The
melding of data and telecommunications networks
necessitates a "data-oriented" strategy among standard
telecommunications-equipment vendors. As end markets
evolve over the next five years, equipment vendors without
strong data-networking competencies will be left out in the
cold.
Fueling the current scramble, the telco-equipment vendors
are keenly aware that once October comes, restrictions
preventing Lucent from conducting pooling-of-interest stock
swap mergers (as opposed to cash or debt-financed meals)
come off. I'm expecting Lucent to make one or more
acquisitions this year. I wouldn't be surprised to see them
grab one of the remaining "Big 5" firms.
But back on earth, 3Com will be reporting earnings next
week. I'm not expecting anything exciting. The company
continues to face margin pressures; the pricing environment
remains sluggish. Inventories piling up also remain a risk
factor.
Portfolio
Dig into the Tech Stalker's
Portfolio to see his
complete roster of
investments.
For about a month, I have considered buying another
100-share block at $25 or less. For now, I'm going to bide
my time. I'm jealously guarding my remaining cash, and I
don't mind missing the opportunity of reaping even more of a
takeover premium if it comes. I'm comfortable holding my
modest position -- even at a loss. The company will rebound
over time, takeover or no takeover. But I don't want to bet the
farm either.
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