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

To: Pikewest who wrote (11204)	12/2/1997 10:21:00 PM
From: Mike 2.0	Respond to of 45548

But Tobia anticipated the inventory issue, and his revenue target presumably took this into account. I'd guess his rev estimate was probably the lowest of the bunch. This says revenue shortfall to me. Does anyone disagree.

To: Pikewest who wrote (11204)	12/2/1997 10:27:00 PM
From: Pikewest	Respond to of 45548

ARTICLE ON DOW JONES December 02, 1997 9:57 PM DOW JONES NEWS SERVICE 3COM HAS MORE INVENTORY TO CUT BUT ANALYSTS ARE SUPPORTIVE ÿ By Mark Boslet PALO ALTO, Calif. (Dow Jones)--3Com Corp. (COMS) bit the bullet by sharply cutting swollen inventories at distributors and allowing second-quarter results to fall far short of Wall Street's expectations. The Santa Clara, Calif., company said more inventory cuts would follow in the third quarter, placing pressures on that period as well. Making the inventory correction all the more difficult was a weak Southeast Asian market and slow second-quarter sales of fast 56 kilobit-per-second modems, the company said. The slowness in the modem market was the result of the lack of a standard enabling 3Com's x2 modem and its competitor, the K56flex from Rockwell International Corp. (ROK), to interoperate. 3Com's after-market news became the latest in a string of announcements to roil the networking industry. Early today Cabletron Systems Inc. (CS) warned that its third quarter would be weak as the expected late-quarter spurt of orders didn't materialize. Also, networking industry supplier Altera Corp. (ALTR) said it experienced a weak November when customers pushed out orders for its programmable chips. Analysts have also warned of a slow November at Atmel Corp. (ATML), also a supplier to the industry. For the most part, Wall Street had been anticipating 3Com's inventory problem, and many top analysts had sliced their estimates for the quarter in recent weeks. Even still, the size of the shortfall surprised some who follow the stock. In a press release, 3Com said it expected to make a "slight profit" for the quarter, which analysts projected after a conference call with the company to be about 5 cents a share. The consensus estimate prior to Tuesday's announcement was 44 cents a share. Also in the release, 3Com said it expected revenue for the quarter to be between $1.22 billion and $1.24 billion. Expectations on Wall Street were for about $1.6 billion. Many analysts trace the swollen inventories to 3Com's acquisition of modem-maker U.S. Robotics Corp. Anticipating rapidly expanding sales of its x2, U.S. Robotics earlier this year filled the distribution channel with modems and x2 versions of its Total Control remote-access product. Product shipments to distributors exceeded sales to consumers, and inventories built to a level much greater than 3Com anticipated at the time of the merger. Made 'Right Decision' However, other analysts point out that U.S. Robotics shouldn't receive all the blame. 3Com also used the second quarter to cut inventories of its own network-access cards and system products, such as hubs and switches. Analysts were largely complementary of the strong medicine 3Com swallowed. The company made "absolutely the right decision," said PaineWebber analyst Paul J. Weinstein. As a result, the second quarter "should be the low point for earnings" with growth to follow. "The thing that will add jitters" to tomorrow's trading is "this is not over," said Eric Blachno, an analyst at Bear Stearns. But "I view the 3Com announcement as good in the long term." Experts estimated that 3Com reduced inventories during the second quarter by $350 million to $440 million, or three to five weeks of sales. On a conference call, the company said it had to reduce inventories in modems and systems products by another $200 million. More specifically, the company said that at the end of the second quarter it had five weeks of network adapter card inventory and a long-term goal of maintaining four to six weeks of inventory. Modem inventories were 10 weeks and long term, the company wants inventories of six to eight weeks. In the systems products business, including the Total Control hub, inventories were 9 weeks. The company's goal is five to seven weeks. 3Com hopes to reduce its inventories the targets by the end of the third quarter. Aiding that effort, the company expects third quarter sales to increase from the second quarter. On its conference call, 3Com said Southeast Asian sales - which made up a "low double-digit" percentage of 3Com's first-quarter business - were flat or fell in the second quarter. With the slowness in Asia and in the modem market, 3Com was unable to fully adjust its inventories in one quarter, said NationsBanc Montgomery Securities Inc. analyst Al V. Tobia Jr. Still, "I think the company is the dominant vendor of low-end switches and modems." -Mark Boslet; 415 496-1366