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Technology Stocks : 3Com Corporation (COMS) -- Ignore unavailable to you. Want to Upgrade?

To: Mehrdad Arya who wrote (39587)	2/21/2000 5:05:00 PM
From: David E. Taylor	Respond to of 45548

Mehrdad: You pre-empted my reply to your earlier post. To answer your Q's: (1) Yes, but without revenue growth, there's a limit to how much more efficient operations can grow the bottom line. COMS has already squeezed its operations and inventory management as much as it can, given its product distribution model. So until top line growth is manifest and proven, there's little more there. (2) Yes, but they're presently a very small part of revenues, and all of them are product areas where there will be cut throat competition, pricing and margin pressures, and market share battles. NIC's and modems were big margin products a few years ago, look where they are now. And yes, COMS knows how to play this game, but they still need to show the revenue growth before the market will believe them. (3) I agree that COMS has done a great job supporting and developing the PALM market, that's why we're (mostly) all here. That has diddly to do with COMS future sans PALM. And whatever success COMS management has had with PALM hasn't, as yet, translated into similar success with their other product lines. (4) Yes, I disagree with your $6 billion figure. As of the last filed 10Q, COMS is carrying $4 billion in assets on the books, of which $3 billion is cash/investments, and $1 billion is accounts receivables/inventory. Like most, I count only the $3 billion in cash and investments, worth about $8/share, and not the present value of investments on paper. As I've found out to my chagrin many times after basking in the glow of large gains in my holdings, the value of investments on paper only become real assets when they're actually sold for cash. In any event, as I've noted a few times, the market tends to value companies on a multiple of revenues or earnings or both, and not cash/investment holdings. So my value for COMS, as I've posted a few times, is about 2X revenues, or a P/E on the networking business of about 25, plus about $8 for the cash on the books, giving me $35 a share for COMS sans PALM. I don't think I've ever posted a valuation of $20 for COMS, in fact I've (politely) argued with Gary and others that IMO their $20 valuation is too low. You of course are entitled to your opinion that COMS sans PALM is worth $47/share, but I'll bet you'll be a lonely fellow buying COMS at that price. I've been there, done that, in the fall of 1997 -- bought at 45, sold at 35. In fact I've bought at 35 (thinking it was safe) and wound up selling at 25, early last year. So, after PALM is gone, my trading range for COMS will revert to buy in the low-mid 20's, sell in the low-mid 30's, because that's all I presently think it's worth. Good luck. David T.