Groan: 3Com's 3rd-Quarter Profit May Lag Forecasts, Hurt by Price Cuts
Santa Clara, California, Feb. 17 (Bloomberg) -- 3Com Corp., the
No. 2 network-equipment maker, may report less-than-expected fiscal
third-quarter profit amid price cuts on key products and stiffer
competition from Cisco Systems Inc.
Prompted by concern over 3Com's revenue growth, five analysts have
this month cut their quarterly earnings estimates for the company
by at least 2 cents a share to 34 cents, according to First Call Corp.
Analysts said 3Com may be losing business to larger rival Cisco, and
price cuts on 3Com's modems, computer connector cards and PalmPilot
products could curb revenue growth. Shares of 3Com have dropped almost
30 percent since Feb. 2, when Cisco said its sales made through
distributors are growing faster than expected.
''3Com is vulnerable to market-share gains by Cisco,'' said Farrokh
Billimoria, an analyst at Hambrecht & Quist, in a report last week.
Billimoria rates 3Com ''hold.''
Distributor sales are ''3Com's key distribution channel,'' wrote
Billimoria, who cut his third-quarter earnings estimates for 3Com to
34 cents from 36 cents and his revenue estimates to $1.52 billion from
$1.54 billion.
First Call's average earnings estimate for 3Com, based on a survey of
27 analysts, remains 36 cents a share.
A 3Com spokesman said the company expects to report results for the
quarter ending Feb. 28 during the third week of March. 3Com officials
declined to comment on expected third-quarter results, citing company
policy.
3Com shares rose 3/4 to 32 5/8 in midafternoon trading.
Price Cuts, Slower Sales
Santa Clara, California-based 3Com usually sees strong sales of its
consumer products, such as its PalmPilot and analog modems, in
November and December. Still, sales of those products, which
contribute more than half of 3Com's revenue, traditionally slow in
January and February.
On an earnings conference call on Dec. 22, 3Com Chief Financial Officer
Christopher Paisley told analysts that the company's third-quarter
gross margin could narrow if 3Com was forced to cut prices. Gross
margin, the percent of revenue left after deducting production costs,
is a key indicator of profitability.
The third quarter is typically ''the toughest quarter'' of 3Com's
fiscal year and ''has historically had either sequentially lower sales
or only slightly increased sales from the prior quarter,'' Paisley
said at the time.
3Com on Feb. 4 cut the price of its most popular PalmPilot device by
19 percent. PalmPilot is 3Com's fastest-growing product line,
accounting for about 10 percent of revenue.
Analysts think prices also are falling on 3Com's computer-connector
cards, used to link PCs to corporate networks, and that those cuts may
trim the company's revenue growth. ''I wouldn't be surprised if 3Com's
revenue is down sequentially'' from the second quarter's $1.54 billion,
said Patrick Houghton, an analyst at Sutro & Co. who rates 3Com ''buy.''
Houghton expects 3Com to earn 34 cents a share.
In the year-ago quarter ended March 1, 1998, 3Com had profit before a
gain of $7.41 million, or 2 cents a share, on revenue of $1.25 billion.
Thread, keep in mind that there IS NOT ONE THING in this story
that has not appeared on this thread before. This is old news that
accounted for the COMS downturn from the 40s. Reporter short? Lazy?
o~~~ O |
