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

To: VLAD who wrote (14799)	3/24/1998 11:46:00 PM
From: Tom Doughty	Respond to of 45548

Make of this what you will--I think it's new: (this may have paragraphs out of order) PALO ALTO (Dow Jones)--3Com Corp. (COMS) tamed its unruly inventories during the third quarter, sacrificing some growth but bringing product stocks at distributors to their desired levels. Looking toward the fourth quarter, the networking equipment maker said that sales into the distribution channel would now more closely match sales out of the channel, indicating that normal growth would resume. "Our number one objective was to bring our channel inventories down," said Eric Benahmou, chairman and chief executive. "We successfully met that objective." The Santa Clara, Calif., maker of switches, hubs and modems also gave a relatively optimistic picture of the industry's health on a conference call following the release of third-quarter results. "Robust demand in Americas and throughout Europe" remains in place despite continued weakness in Asia, Benhamou said. With the standard for new-generation 56-kbps modems set, a invigorated sales cycle will start slowly and accelerate over the next couple quarters, he said. 3Com also said it expects its gross margin to improve over the next two quarters from 43.4% in the third quarter. But it said it was trimming its 2- to 2 1/2-year expectation for the gross margin to a range of 45.5% to 47.5% from a previous range of 48% to 50%. The company sees an increasing share of its business coming from lower-priced sales to OEMs as well as in the rapidly emerging consumer and small-business category, said Chief Financial Officer Christopher Paisley in explanation. For instance, 3Com projects a third of its network-adapter card sales will be to OEMs by the end of the year, up from 25% in the third quarter. Adapter cards enable computers to communicate over networks. For the third quarter, 3Com posted revenue of $1.25 billion, down from $1.46 billion a year ago. Earnings were 4 cents a diluted share, including a $9.9 million gain. Earnings last year were 55 cents, also including a gain. Wall Street's estimate was for a much higher 14 cents. But some analysts said investors would pay less attention to the lower-than-expectation results and closer attention to the company's success with its inventories. Nevertheless, it is difficult to know how Wall Street investors will react, said Farrokh Billimovia, an analyst at Hambrecht & Quist. What seemed clear is that analysts' earnings estimates will likely fall, at least modestly on Wednesday. On the conference call, 3Com said it decreased swollen inventories of modems from the start of the quarter by three weeks of sales, leaving inventories at seven weeks. Inventories of systems products, such as hubs, came down two weeks, putting inventories at seven weeks. Adapter card inventories rose one week to six weeks because the company shipped several new products and wanted to make sure availability was adequate. These inventories also were in the company's desired range. But 3Com said pricing pressures in modems, remote-access devices and switches increased in the quarter, with prices falling at a "double-digit" pace. Meanwhile, the company trimmed its expenses by $27.4 million in the quarter, compared with the second quarter, and said additional expense cuts would follow. The company's new 2- to 2 1/2-year financial model now calls for expenses to decline to between 27.5% and 29% of revenue from the company's previous plan of 30% to 32% of sales, Paisley said. The question is how long 3Com can continue making these deep cuts to sales and marketing, Billimovia said. The company plans to ship a more powerful layer 3 switch, the CoreBuilder 9000, late this spring. The switch will run at gigabit speeds. -By Mark Boslet; 650 496-1366 "Dow Jones News Service" "Copyright(c) 1998, Dow Jones & Company, Inc."