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Technology Stocks : COMS & the Ghost of USRX w/ other STUFF -- Ignore unavailable to you. Want to Upgrade?

To: Glenn D. Rudolph who wrote (9163)	11/13/1997 6:45:00 PM
From: Wigglesworth	Read Replies (2) \| Respond to of 22053

3Com Dn Again On Worries Over Inventory Levels,Asia Effects Dow Jones Newswires No further information is available at this time. By Joelle Tessler NEW YORK (Dow Jones)--3Com Corp. (COMS) shares continued to slide Thursday on concerns the company is slowing shipments of modems and PC adapter cards to bring down inventory levels and that the economic crisis in Asia could diminuish 3Com's growth prospects. Although 3Com's shares began to fall in mid-October, when the stock was in the mid-50s, the pressure intensified early last week when a number of analysts lowered their earnings estimates for the networking equipment maker. Since Nov. 3, 14 out of the 33 analysts who follow the company have lowered their earnings projections, including three who did so earlier Thursday, according to Charles Hill, director of research at First Call Inc. Hill said consensus estimates on 3Com have come down to 51 cents a share from 53 for the company's fiscal second quarter, which ends in November, and to $2.24 a share from $2.31 for fiscal 1998. The lowest projection for fiscal 1998 has dropped to $1.83 a share from $2.15. The consensus forecast for fiscal 1999 has fallen to $2.90 a share from $3.03 since Nov. 3, though only nine of the 14 analysts have actually lowered their 1999 number. The remaining five either initiated or don't yet have estimates for fiscal 1999, Hill said. The lowest projection for fiscal 1999 has dropped to $2.40 a share from $2.80. Comparable year-ago results were not immediately available since last year's numbers do not reflect 3Com's acquisition of U.S. Robotics. The stock fell to as low as 28 1/2 Thursday before recovering somewhat to 28 5/8, down 2 1/4, or 6.7%. More than 19.2 million shares have changed hands, compared with average daily volume of 8.7 million shares. Thursday's losses come on the heels of a 12.1% drop in the stock Wednesday. The stock is just above the 52-week low of 24 set April 22, but well below the 52-week high of 81 3/8 set Dec. 10, 1996. No further information is available at this time. 3Com has four main businesses, which each account for roughly 25% of its revenue: network interface cards, also called adapter cards; local area equipment; modems; and modem systems for Internet service providers. The company acquired these last two businesses with its purchase of U.S. Robotics. Recent concerns have focused on high inventory levels in 3Com's modem business, which largely targets the consumer market, and its adapter card businesses. Looking at the modem operations, Lazard Freres & Co. analyst Michael Duran explained that distributor inventories built up because U.S. Robotics had been shipping a lot of product to distributors to try to make its business look good. After 3Com acquired U.S. Robotics, however, the company began to slow shipments in order to bring down inventory levels. Duran noted that 3Com wants to let distributors ask for modems rather than push its products on them so that it can get better prices and better manage its channel inventories. 3Com's modem business has also been plagued by the lack of an industry standard for 56k modem technology. Right now, U.S. Robotics' x2 modem technology is not compatible with the technology that Rockwell International Corp. (ROK) uses in its competing K56flex modems. Duran said that although 3Com appears to be selling more modems than Rockwell and may therefore be winning the market battle, "the market grows more slowly without a standard" because customers have trouble making buying decisions. The analyst therefore believes that while U.S. Robotics will have "a larger share of a smaller market" as long as there is no standard, the company will have "a lower share of a larger market" once a standard is reached. Analysts are also concerned about high inventory levels for 3Com's adapter cards, which are placed inside of PCs to connect computers to networks. According to Erik Suppiger, a research associate at Deutsche Morgan Grenfell Inc., 3Com stepped up adapter card shipments at the end of its first quarter in order to meet numbers for the period. The company then started to slow shipments at the start of the second quarter in order to realign inventories. Duran added that 3Com's adapter card business has been impacted this year as the industry has upgraded to fast Ethernet from Ethernet technology and moved to a new standard for the electrical connection between the card and the PC. In addition, although drastic price cuts in February by Intel Corp. (INTC) - the other major player in the adapter card business - have driven sales, they have hurt margins, Duran said. At the same time, concerns are spreading that Intel may move to place adapter card functions right on PC motherboards. Analysts are also worried that the economic crisis in Asia could impact 3Com's growth prospects since the company generates as much as 15% of its sales in Asia. Suppiger of Deutsche Morgan said about 5% of 3Com's revenue comes from Thailand, the Philippines, Malaysia and Singapore, which have all been hard hit by the Asian currency crisis. Concerns center on whether demand from Asia will drop off since customers may not be able to afford to invest in networking infrastructure. Duran of Lazard Freres added that a slowdown in PC sales could slow adapter card sales. Despite all the worries among investors, Duran does have a bright outlook for the company's LAN equipment operations and its modem systems for ISPs. The company's local area network equipment business, which makes products like hubs, switches and routers, is entering a new product cycle that should drive earnings in 3Com's third and fourth quarters, he said. And Duran expects the company's new double density hyper access cards, which have twice as many modems in the same amount of space, to be very popular with Internet service providers. The analyst added that many ISPs are upgrading to 56K modems because their customers are asking for the faster technology. Looking at 3Com's stock, Duran maintained that the shares are underpriced since they are trading at a price-to- earnings ratio of 10 even though "revenue is starting to come back [and] margins are improving." -Joelle Tessler; 201-938-5285