3Com sees the light
By Corey Grice
Staff Writer, CNET News.com
October 29, 1998, 7:05 p.m. PT
update When networking giant 3Com reported
better-than-expected first-quarter earnings last
month, executives cast the results as a sign that the
company had turned the corner financially.
Now the company is saying strong second-quarter
sales could be on the horizon.
"We expect to see some solid growth in our second
fiscal quarter as we find significant sales uptake in
the quarter … and as we see a strong uptake in the
Asian marketplace," 3Com senior vice president
Douglas Spreng told Bloomberg today.
3Com admits that historically the second quarter
has been seasonally strong. And while analysts
point to signs that the
company is recovering,
they say it merely has
stabilized after a woeful
1998 that threatened the
entire networking
equipment market, as
sluggish global sales and
maturing markets
dampened expectations.
Still, the No. 2 data
networking company's
profit margins are on the
rise, after bottoming out about two quarters ago.
Analysts are looking for strong sales of a newly
released high-end switching family.
The company also expects an uptick in modem
sales due to the back-to-school season. On the
local area network, or LAN, side of the business,
3Com is looking for increased global sales due to
typical summer slowness in Europe and Latin
America, a spokesman said.
"The sales rate clearly has clearly improved," said
Paul Weinstein, director at Credit Suisse First
Boston.
On the client side the company's modems and
adapters are selling better and 3Com has
introduced new products that have helped the sales
rates, Weinstein said. "They saw a big growth rate
last quarter because there was a lot of pent up
demand," he said.
Weinstein said he predicts profit margins to
increase the next six quarters.
"Expense ratios are starting to normalize [following
the company's June 1997 acquisition of U.S.
Robotics] and gross margins continue to climb," he
said. "They've stopped 'stuffing the channel' and got
rid of some of the inventory problems."
Financial analysts see some positive signs from the
company. But they aren't ready to declare a
complete return to its previous successes.
"I met with the company last week and it sounds
like business is doing fine," said Stephen Koffler, an
analyst at Donaldson Lufkin & Jenrette.
Koffler said he is looking for strong sales of the
company's new high-end switching family. 3Com
recently released the new CoreBuilder 9000 line
aimed at high-end corporate networks, a market in
which 3Com has lagged behind rivals.
3Com, which lives largely at the so-called edge of
the network by making products to facilitate
desktop and system connections for small and
medium-sized corporate layouts, has been criticized
in some corners for having trouble tapping into the
lucrative high-end corporate market.
Coupled with some fiscal 1998 oversupply
problems and shackled by the company's merger
with U.S. Robotics--which drew fire for the way
3Com integrated the modem maker--profits have
beaten expectations but are far below previous
levels.
At the same time, Cisco Systems, the leader in the
data networking equipment arena, has made a
killing in the heavy-duty corporate and service
provider markets with its high-end routers and
other networking products. Cisco, 3Com's
networking rival, said today its revenues could top
$10 billion for the current fiscal year.
Despite some signs that 3Com has stabilized, the
company is still plagued by rumors that it is an
acquisition target. Typical suitors include Intel,
which has expressed an interest in expanding its
presence in the networking market, and Lucent
Technologies, the voice equipment giant that has
made no secret of its desire to get into data.
Meanwhile, 3Com will open a new factory in
Singapore this week where the company will make
modems and network connections, according to
spokesman Brian Johnson. "We needed that
additional capacity due to demand for our
products," Johnson said. "[This plant] puts that
capacity in a high-growth region for us."
3Com will report its second-quarter financial results
in mid- to late December. Wall Street is looking for
a profit of 31 cents per share from the company,
compared with earnings of one penny per share for
the same period a year ago, according to First Call.
Stock in the company closed up about 1.5 percent
today at 34.3125. Shares have traded as high as
46.5 and as low as 22.9375 in the past 52 weeks.
Reuters contributed to this report. |
