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

To: mike thomas who wrote (10906)	12/18/1997 7:38:00 PM
From: David Lawrence	Read Replies (3) \| Respond to of 22053

PALO ALTO, Calif., Dec 18 (Reuters) - 3Com Corp executives said the company expects to see short-term pressure on its gross margins as it moves to eliminate inflated inventory levels in its distribution channels. The executives, speaking to analysts in a teleconference call following release of its second fiscal quarter results, said Asia was unlikely to return to its historic above-average industry performance any time soon. But on the bright side, an expected imminent resolution of standards for 56-kilobits per second computer modems could help boost industry growth prospects for 1998, they said. 3Com sales of modems during its second quarter were dented by a split in the networking industry over standards for the new higher speed 56-kilobit modems. 3Com has backed one type of high speed modem, the x2 standard promoted by US Robotics, which it acquired earlier this year, while Rockwell International (NYSE:ROK) has been promoting a separate standard. Because the two modem standards do not work together, customers have been reluctant to buy high speed modems until the split is mended. Eric Benhamou, chairman and chief executive of 3Com, said a recent technical group "breakthrough" compromise in Orlando, Fla. on the standard could lead to "above 90 percent" chance of resolving the issue in January. The executive said the time to migrate to the emerging standard should be available "within weeks" and that 3Com expects it should be able to ship new modems using the standard in the first calendar quarter of 1998. "These recent developments are likely to benefit the growth prospects of the modem industry for 1998," he said. 3Com believes its products alone allow for software upgradability to the new standard for both the modems and the equipment used by service providers, he said. Benhamou said another factor dampening fiscal second quarter results was the economic turmoil in Asia, adding that "it's unlikely that Asia will return to its above average industry growth rates any time soon." Early this month, 3Com set out to slash inventories of unsold networking products sitting with its distributors. The company slashed shipments in the second quarter and took a hit to sales to allow the distributors to clear their shelves. Benhamou said this remains the first priority, while new networking products are among its top three priorites, along with its objective to "improve market share position... while at the same time keeping a flat level of operating expenses." Chris Paisley, chief financial officer, said gross margins declined in the second quarter to 46.6 percent, down 1.4 percent from the previous quarter, primarily due lower sales but also due to aggressive workgroup products pricing. Paisley said efforts to reduce inventory further "may well put some short-term pressure on gross margins." He also said days of sales outstanding rose to 68 days from 64 days sequentially. Absolute receiveables fell by more than $200 million while sales dropped by nearly $400 million. Inventory levels grew by a bit more than $200 million. Market growth forecast by independent parties for 1998 is expected to be better than 1997, "perhaps by 5 to 6 percent, but certainly below the levels of growth enjoyed during the early to mid 1990s," Paisley said. "Pricing and average selling prices declines remains a factor and we expect them to continue to be so," he said. "On average prices have dropped at a faster pace in 1997 than in previous years. There's insufficient evidence to conclude that prices will stabilize in FY98." Service provider business has been "very lumpy," Benhamou said, adding "the lumpiness has been exacerbated by the fact there has been massive consolidation in this area." He said 3Com expects a strong cycle of upgrades and added access ports during 1998, but business will come in larger and larger chunks due to the size of consolidated providers. Copyright 1997, Reuters News Service