3Com Falls for 2nd Day Amid Concern About Price Cuts
Santa Clara, California, Feb. 4 (Bloomberg) -- 3Com Corp. shares fell
8.5 percent, sliding for a second day, amid concern about falling
prices on the No. 2 network-equipment maker's popular PalmPilot
hand-held computer and other products.
3Com fell 3 3/16 to 34 3/16 in trading of 28 million, making it the
second-most active stock in U.S. markets. The stock fell 15 percent
yesterday, its biggest one-day percentage drop in almost two years,
and has lost 33 percent of its value since trading as high as 51 1/8
on Dec. 23.
The company cut by 19 percent the price of its most popular PalmPilot
device, 3Com's fastest-growing product line, which accounts for about
10 percent of revenue. Analysts also think prices are falling on
3Com's analog modems and computer-connector cards, which together
contribute about half the company's sales. ''Their business is very
susceptible to price declines given the markets they're in,'' said
Scott Heritage, an analyst at Warburg Dillon Read, who rates 3Com
''hold.''
Heritage and other analysts said the cuts, together with traditionally
slow January 3Com sales, mean the company probably has booked less
than half its expected fiscal third-quarter revenue of about $1.5
billion. The quarter ends in February. ''This quarter will be more
back-end loaded than usual,'' said Martin Pyykkonen, an analyst with
CIBC Oppenheimer who rates 3Com ''hold.''
Strong Holiday Sales
3Com usually has strong sales of consumer products such as its
PalmPilots, modems and connector cards in November and December.
Those sales tend to fall off after the holiday buying season,
Pyykkonen said.
Prices on several 3Com adapter-card models are down 15 percent from
November prices, according to a report issued yesterday by analyst
Stephen Koffler of Donaldson, Lufkin & Jenrette Securities.
Koffler, who rates 3Com ''buy,'' cut his earnings estimate for 3Com's
fiscal third quarter ending in February to 34 cents a share from 36
cents.
He estimated that adapter-card sales make up about 20 percent of 3Com's
revenue. The company's gross margins, or the percentage of sales left
after subtracting production costs, will probably narrow because of
the price cuts, Koffler wrote.
3Com's analog modems are also coming under increasing price pressure,
Pyykkonen said.
Santa Clara, California-based 3Com is expected to earn 36 cents a share
in the quarter, the average estimate of analysts polled by First Call
Corp.
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