Benhamou: 4th quarter to be very strong
3Com's Earnings Top Forecasts As New Products Boost Sales 29%
By LEE GOMES
Staff Reporter of THE WALL STREET JOURNAL
A resurgent 3Com Corp. said strong demand for new products helped it post a 29% increase in sales, as well as earnings well above Wall Street expectations.
For its fiscal second quarter ended Nov. 27, the Santa Clara, Calif., maker of computer networking gear reported net income of $132.9 million, or 36 cents a diluted share, compared with net of $4 million, or a penny a diluted share, a year earlier. Analysts had expected the company to earn 31 cents a share in the latest period, according to First Call. The year-period included $1.22 billion in acquisition-related charges.
Company Profile: 3Com
Sales were $1.54 billion, well above last year's $1.20 billion.
The news provided another boost to 3Com shares, which have nearly doubled in the past two months. In Nasdaq Stock Market trading Tuesday before the results were released, the shares finished with a gain of $1.50, at $48.625, a new 52-week high. In after-hours trading following release of the numbers, shares rose another $1, according to Instinet.
The shares are still well below their all-time high near $75, reached at the end of 1996. That was before 3Com's acquisition of U.S. Robotics, which derailed the stock and caused considerable inventory problems at the company.
Tuesday's results suggest that the worst of that period is behind the company. Indeed, after lagging behind the growth of industry leader Cisco Systems Inc., revenue at 3Com is once again growing at a rate comparable to that of Cisco.
"Things are clearly moving in the right direction for them," said analyst Luke T. Szymczak of Prudential Securities.
While most of 3Com's sales and profits are from its networking products, the company is also starting to see payoffs from its PalmPilot, the popular electronic organizer that it acquired when it bought U.S. Robotics, said Mr. Szymczak. Until recently, that device hadn't shown much of a return for the company, despite all the marketplace attention it has been receiving.
3Com Chief Executive Eric Benhamou said the strong quarter was the result of positive reaction to new 3Com products, as well as generally favorable conditions in the overall networking marketplace. He also cited "continuous improvements in operational management" for the better-than-expected profit.
Mr. Benhamou said that because the current period is a seasonally tough one for the company, he didn't expect 3Com to repeat its strong second-quarter performance in the third quarter. But he said business would pick up in the fiscal fourth quarter, which he expects to be "very strong."
Separately, 3Com announced Tuesday a relationship with Hewlett-Packard Co. under which it will be the exclusive provider of H-P's networking connectivity products.
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