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

To: Wigglesworth who wrote (21998)	9/23/1998 12:47:00 AM
From: joe	Read Replies (2) \| Respond to of 45548

Some pts worth highlighting: "They made it through...without a hitch" and are now entering the seasonally strong second quarter, said Alfred Tobia, an analyst at NationsBanc Montgomery Securities. ""I feel pretty good" about the quarter and the tone on the conference call was "good,"* said Randall Yuen, a technology analyst at Salomon Brothers Asset Management.* (Of course, it's just one guys opinions.) "3Com reported revenue of $1.4 billion, down from $1.6 billion a year earlier, but up 2% from the fourth quarter. While revenue would have been essentially flat from the fourth quarter without strong sales of the company's Palm Pilot handheld computer, networking equipment for smaller businesses and products for mobile computers experienced strong growth as did the company's power CoreBuilder switches." Amazing these guys naive reasoning. The two products of the future acted superbly. That's what the future is about. Modems and NICs are just a consistent profit makers which will make $$ from improved efficiencies, less competition, and upgrades to improved versions. Most importantly, these guys do not mention unit sales. I strongly bet that unit sales increased in the lower margin stuff, which turns into pricing control later on down the road. "The price erosion that forced remote-access concentrator prices down about 50% in recent quarters also slowed during the first quarter, a favorable prospect for 3Com's Total Control product family. Industry sources say network operators are presently evaluating remote-access gear - from product vendors including 3Com - for several contracts valued at a total of about $2 billion." Price erosion beause CSCO is dumping products to keep market share. This is a losing battle against COMS. COMS strengths are manufacturing efficients for lower margined products. Plus, Total Control products are superior to it's competitors for high- end enterprises and hopefully the word gets out. This is the area to keep an eye on. CSCO will have to take a hit to keep strength in this area. And, IMO, there's a lot of potential business for lots of competitors. "In its quarterly report, 3Com said that it reduced in-house inventories by $144 million to $501 million. The company needs the improvement to lift gross margins, Yuen said" True, and they are cutting costs ==> lifts gross margins. I think by 1999, they will have more of an internet buying system for retailers and VARS, as CSCO and DELL do. So we will progressively see costs cut from these moves. "But it also saw days sales outstanding, a measure of receivables, climb to 63 days from 56 days in the fourth quarter. In explanation, the company said 49% of product shipments came during the final five weeks of the quarter, which pushed back collections." Need to look into this. I wonder if the back to school sales increases started in the last month of the quarter? >>3Com Chief Executive Eric Benhamou described future prospects for the company as favorable. The economic woes of places such as Southeast Asia, Japan and Russia contrast with the "robustness" of 3Com's two largest markets, Europe and North America, he said.<< Should be a major reason for US money managers to buy COMS. Little exposure to emerging markets. Lots of good companies are being cast off due to world problems influencing their profits. More $$ will be plowed into the smaller group of companies where profits are not as easily influenced by ASIA. >>Benhamou said his outlook for annual growth in the networking industry of a "low-teens" percentage remains unchanged from January.<< Low ball. Eric B. has to keep expectations down or his butt will be sued and kicked to kingdom come. Plus, money managers will hate him for the rest of his career. Maybe Eric B. is finally learning to play the Wall Street game. Good move on managing earnings expectations. "The typically seasonally strong second-quarter sales growth also should enable 3Com to make progress toward its goals of improved margins, Paisley said." I agree. Next quarter will be better. "Market sources said analysts with earnings estimates at the low end of Wall Street's projections would probably raise their numbers creating a positive environment for the stock on Wednesday. " If this is true (which I'm sure it is), this is the most important point made. I see easy 40-50 range before next quarter. In the past, this has worked in reverse and has killed this stock. It's the game all these analysts have played so they can prime themselves to this point where, now, they can buy COMS at the unbelievable dirt low price that it's at right now. I am buying on any chance I get for the next 2 months, providing no major world problems, and no major screwups with COMS. All, they have to do is keep executing.