3Com Continues Making Progress In 1Q, Is Positive About 2Q
By MARK BOSLET
Dow Jones Newswires
PALO ALTO, Calif., -- 3Com Corp. (COMS) posted solid results for its seasonally tough first quarter and said it was upbeat about prospects for its second quarter.
At a time when global economic turmoil has spoiled many companies' performances and summer vacations slow European buying, 3Com topped Wall Street's estimates with earnings of 26 cents a diluted share, compared with a 15-cent loss a year ago. Excluding a gain, earnings in the first quarter were 24 cents, or 4 cents above Wall Street's estimate.
On a conference call with analysts and press, Chief Financial Officer Christopher B. Paisley said the company was optimistic looking ahead.
"We are quite encouraged by what we see," he said. "We are optimistic about our prospects."
For the most part, analysts seemed pleased by the network-equipment company's results, which came on the heels of an improved fourth-quarter, but several troubled periods prior to that.
"They made it through...without a hitch" and are now entering the seasonally strong second quarter, said Alfred Tobia, an analyst at NationsBanc Montgomery Securities.
"I feel pretty good" about the quarter and the tone on the conference call was "good," said Randall Yuen, a technology analyst at Salomon Brothers Asset Management.
Company shares were up in after-hours trading, rising 1 2/8 to 33 5/8.
After market close, 3Com reported revenue of $1.4 billion, down from $1.6 billion a year earlier, but up 2% from the fourth quarter. While revenue would have been essentially flat from the fourth quarter without strong sales of the company's Palm Pilot handheld computer, networking equipment for smaller businesses and products for mobile computers experienced strong growth as did the company's power CoreBuilder switches.
The price erosion that forced remote-access concentrator prices down about 50% in recent quarters also slowed during the first quarter, a favorable prospect for 3Com's Total Control product family. Industry sources say network operators are presently evaluating remote-access gear - from product vendors including 3Com - for several contracts valued at a total of about $2 billion.
In its quarterly report, 3Com said that it reduced in-house inventories by $144 million to $501 million. The company needs the improvement to lift gross margins, Yuen said.
But it also saw days sales outstanding, a measure of receivables, climb to 63 days from 56 days in the fourth quarter. In explanation, the company said 49% of product shipments came during the final five weeks of the quarter, which pushed back collections.
3Com Chief Executive Eric Benhamou described future prospects for the company as favorable. The economic woes of places such as Southeast Asia, Japan and Russia contrast with the "robustness" of 3Com's two largest markets, Europe and North America, he said.
Benhamou said his outlook for annual growth in the networking industry of a "low-teens" percentage remains unchanged from January.
The typically seasonally strong second-quarter sales growth also should enable 3Com to make progress toward its goals of improved margins, Paisley said.
Market sources said analysts with earnings estimates at the low end of Wall Street's projections would probably raise their numbers creating a positive environment for the stock on Wednesday.
-By Mark Boslet; 650 496-1366
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