To: gfr fan who wrote (11458 ) 12/3/1997 7:21:00 PM From: Glenn D. Rudolph Respond to
3Com shares fall on weak profit outlook
Reuters Story - December 03, 1997 18:10
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By Kourosh Karimkhany
PALO ALTO, Calif., Dec 3 (Reuters) - 3Com Corp. shares fell
Wednesday after the computer networking gear vendor said its
profit for the quarter will be far below what Wall Street
expected.
3Com, the second-biggest networking company after Cisco
Systems Inc., also could face at least two quarters of
lower-than-expected financial results as it takes drastic steps
to cut its inventory and get its modems sales going again,
analysts said.
"The bad news is, it's a significant pain in the near
term," said Paul Weinstein, analyst at PaineWebber Inc. "Of the
alternatives they had this was the best one."
In mid-afternoon, 3Com shares were down $2.563 at $32.75 on
Nasdaq trading of 20 million shares, the most active stock in
U.S. markets.
Other networking stocks also sell. Cabletron Systems Inc.,
a 3Com rival that also warned of weaker-than-expected results
for the quarter, was down $1.125 at $14.563. Cisco fell $2.25
to $84.75, and Ascend Communications Inc. was down $1.50 at
$22.25.
After the market closed Tuesday, 3Com said it had slashed
shipments of its products to its distributors and middlemen to
cut stockpiles of unsold goods. The company also said its modem
sales were weak because of confusion over modem standards and
that its sales to Asia were slowing.
3Com said it expects to report a "slight" profit on revenue
of $1.22 billion to $1.24 billion for the quarter ended Nov.
30. Wall Street had expected the Santa Clara, Calif., company
to earn 44 cents a share, according to Zacks Investment
Research.
Some analysts said 3Com made a good move by taking a
decisive step to slash its inventory by taking a one-time hit
to its earnings. But it could take at least one more quarter to
burn off excess inventory, said Farrokh Billimoria, analyst at
Hambrecht & Quist.
3Com also faces troubles outside its control.
Sales of modems from its US Robotics unit have been slow in
recent months because of an industry-wide feud. While 3Com and
US Robotics are backing one type of high-speed modem, Rockwell
International Corp., is backing a similar but incompatile modem
technology. Consumers are putting off modem purchases until the
industry agrees on one standard.
Leading modem makers will try to hash out a compromise in
January. Even if they do, however, it would take several months
for 3Com to build momentum, Weinstein said.
On top of that, 3Com's Asian sales have dropped off because
of the region's economic turmoil. Asia has gone from being
3Com's most promising sales region to its worst, 3Com Chief
Executive Eric Benhamou said in a conference call Tuesday.
At least three Wall Street analysts slashed their 3Com
earnings estimates. Gruntal & Co. analyst David Takata cut his
fiscal 1998 forecast to $1.23 from $2.17 per share.
