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

To: Eric who wrote (14253)	3/26/1998 2:17:00 AM
From: Scrapps	Respond to of 22053

3Com misses estimates, but controls inventory By Binti T. Harvey, CBS MarketWatch Wed Mar 25 20:31:51 1998 SANTA CLARA, Calif. (CBS.MW) -- Shares of 3Com Corp. took a hit Wednesday after the computer networking giant missed third-quarter earnings estimates by more than a dime. However, analysts see brighter days ahead, now that the company has regained control of its inventory. 3Com (COMS) shares slid 1 5/8 to 35 5/8 on higher-than-normal volume of 9.1 million Wednesday morning. The network equipment maker recorded net income of 2 cents a share excluding a gain from its merger with U.S. Robotics. The results fell substantially short of the consensus estimate of 14 cents a share, as well as year-ago earnings of 45 cents. Revenue decreased to $1.3 billion from $1.5 billion in the third quarter of 1997. Networking analyst Richard Woo of Thomas Kernaghan & Co. attributed the shortfall to falling gross margins and rising operating expenses. 3Com's third-quarter gross margin fell to 43 percent from 50 percent a year ago. Operating expenses, on the other hand, rose to 42 percent of sales from 33 percent. "They're selling products at lower prices but at a higher cost of sales," said Woo. He notes that the competitive landscape has darkened for mid-size companies like 3Com, Cabletron (CS) and Newbridge (NN), as greater competition for channel penetration leads to pricing pressure. The sector has already seen profit warnings from Cabletron and Bay Networks (BAY) for the current quarter. Analysts slashed estimates across the board following the disappointing report, but remained positive on the stock due to inventory control measures which brought channel levels in line with expectations. 3Com reduced its channel inventory to between 6 and 8 weeks, meeting its goals for the quarter. "We applaud management's decision to put the channel inventory behind the company, although the action hurt earnings and cash flows in the third quarter," said BancAmerica Robertson Stephens analyst Paul Johnson. The firm maintains its "buy" rating, but lowered its fiscal 1998 earnings estimate to 77 cents a share from $1.15. Merrill Lynch analyst Joeseph Bellace also gave a mixed report, as he kept an "accumulate" rating on the shares but lowered his fiscal 1998 forecast to 73 cents from 95 cents to $1.05. Despite primarily upbeat outlooks, analysts are ambiguous about the company's future. Johnson said that despite the improvements in inventory management, he believes 3Com will have difficulty returning to its former growth rates and profitability. Woo also cautions investors not to forget the implications of economic weakness in Asia. Woo expects intensifying competition and pricing pressure to eventually marginalize commodity manufacturers like 3Com, while end-to-end solution providers like Cisco (CSCO) will continue to gobble up market share. "North America and Europe alone can't support all the players in the market," Woo said, "the pie isn't big enough for everyone." Binti T. Harvey is an online reporter for CBS MarketWatch.