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

To: Scrapps who wrote (17547)	10/24/1998 8:59:00 AM
From: Ian Mahoney	Respond to of 22053

New Value Line Corp.'s first-quarter results suggest the makings of a meaningful recovery. After a difficult year following the U.S. Robotics acquisition, first-quarter results signal COMS is regaining momentum. The period, typically its weakest, benefited from continued manufacturing cost reductions and merger-related operating leverage, as well as a modest shift toward a higher-margin product mix. Operating margins improved 180 basis points sequentially, (down 775 year to year) while $0.01 of the $0.24 share net arose from a lower tax rate. Channel inventories, the primary cause of the company's recent woes, are now within management target ranges across all product lines. Given easy year-over-year comparisons, we look for share net growth of over 40% in fiscal 2000. 3COM is starting new product cycles in almost every product sector. New ATM Corebuilder switched routers for the Enterprise segment and a full complement of Gigabit Ethernet switches for the Fast Ethernet replacement cycle in small- and medium- sized businesses should help drive top- and bottom-line growth for the next twelve to eighteen months. By May of 1999, COMS could derive 40% of its revenues from products introduced within the previous 12 months. There is one caveat, however. Our earnings model is based on the low end of management's operating-margin target of 16%-20% for fiscal 2000 (from 8.4% this period). If, however, slower-growth, lower-margin client access products (53% of sales) come under greater-than-usual pricing pressure, as has happened from time to time over the last several years, it would make our intermediate-term estimates seem a bit optimistic. All told, we look for share net to reach $1.30 and $1.85 in fiscal 1999 and 2000, respectively. These shares are ranked to mirror the market in the year ahead. Though overall industry growth has slowed, relative opportunities are shifting to small and medium sized businesses, where COMS is well positioned because of its broad and long-standing reseller relationships. Thus, we believe 3Com should be able to weather the heightened challenges from Cisco and the Nortel/Bay Networks combination. David M. Rosenfield October 23, 1998