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Technology Stocks : Ascend Communications (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: Pat Hughes who wrote (54623)	9/23/1998 8:51:00 PM
From: Clay Takaya	Read Replies (1) \| Respond to of 61433

Since djane has become a part-time lurker, here's the news. IMHO OG's notion that COMS's business is a good fit for Intel is somewhat refuted by this article (i.e., why would Intel want to go from a monopoly business to a commodity business?) Silicon Valley: Networker 3Com Wants to Be Alone By Kevin Petrie Staff Reporter 9/23/98 4:01 PM ET Despite swirling takeover rumors, 3Com (COMS:Nasdaq) is planning to turn tidy profits for shareholders by flying solo. In the past few weeks speculation had mounted that the data networking equipment maker could be bought out by Intel (INTC:Nasdaq) or Lucent (LU:NYSE). But 3Com is growing modestly in a market segment that attracts few buyers. Its commodity business of low-end network products, such as PC adapter cards, is its forte, although it also is inching further into larger corporate offices with computer switches and remote-access boxes. In the August quarter, low-end sales grew 3% sequentially to $722 million while corporate equipment sales rose 2% to $684 million. Valued at $12 billion market cap, 65 times trailing 12-month earnings and 2 times sales, the company, say analysts and money managers, offers less advantage to the rumored acquirers than other targets. More importantly, 3Com needs even less from them in order to refuel its growth. CEO Eric Benhamou declines to talk about takeover rumors but argues that his company doesn't need a rescuer. He stresses that 3Com's strategy is to go it all alone. "They've got a business model that nobody else wants," says Greg Rossmann, principal with the investment bank Broadview Associates, which has an investment banking history with 3Com. It may be that 3Com's area of expertise is one that few want to acquire. And this may help the Santa Clara, Calif., company. In fact, it has a good chance to stay independent compared with Cabletron (CS:NYSE), which is ailing but cheap at one times sales, and Ascend (ASND:Nasdaq), whose business with telephone carriers has garnered lots of interest. Although 3Com rules the modem and adapter-card business, sales growth has not been spectacular; the company is building profits through a rigorous cost-cutting effort. Recently it flushed extra inventories from sales channels, and there are hopes that the new modem standard might help juice sales of 56-kilobit models. Rossmann says large phone-network suppliers such as Lucent would gain little from adapter cards and modems. (Lucent declined to comment on acquisition plans.) Another analyst agreed that Lucent has other priorities. "I don't think 3Com will be taken out" anytime soon, said Craig Johnson, principal with the PITA Group consulting firm. One reason: The company wants to go it alone. And although Intel did not loosen 3Com's grip on adapter cards, it has enough overlap to raise antitrust concerns if it were to acquire 3Com. Besides, 3Com likes to partner with unrelated but complementary companies such as Siemens, a Munich-based electronics giant. Together they build things like dual voice-data switches. Analysts note that this alliance is highly valuable to 3Com. Analysts have warmed to 3Com's fundamentals, which bodes well for its prospects as a stand-alone. "I think they have a nice run ahead of them," says analyst Mike Cristinziano with Gerard Klauer Mattison. He upgraded 3Com to buy from hold on Aug. 25 partly because he decided that the company, with inventories clean, finally would grow its business with small to medium-sized companies. The takeover bet has given 3Com stock some padding. Michael Orkin with the money manager Caldwell & Orkin piled into 3Com in late June because he spotted a turnaround. And he will hold the stake on the fundamentals alone. But Orkin couldn't resist buying more shares on the chance that it will be acquired. Portfolio manager John Maack, a 3Com owner with the Crabbe Huson Group, in Portland, Oregon, counts about seven rounds of takeover rumors in the last 18 months. "If 3Com gets bought out, it's icing on the cake."