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

To: matt fahy who wrote (24554)	11/15/1998 9:28:00 PM
From: Wigglesworth	Respond to of 45548

We met with 3Com management yesterday! Benhamou's till turning corners in Hampton Court's maze!! November 5, 1998 - 8:25am Credit Suisse First Boston Corporation CREDIT SUISSE FIRST BOSTON CORPORATION Equity Research-Americas Industry: Data Networking STRONG BUY 3Com Corporation (COMS) Key Points We met with 3Com management yesterday and left with the impression that there is no reason to change any near or long term assumptions and our expectations of a strong financial recovery are intact. Our discussions about competition in the adapter market reaffirmed our belief that despite quarterly shifts in market share, 3Com remains well positioned in this market and this will become evident as additional OEM contracts are awarded. Business in the other segments is progressing in line with expectations and we continue to rate the stock a Strong Buy. Price Target Mkt.Value 52-Week 11/4/981 (12 Mo.) Div. Yield (MM) Price Range 34.9 $40 - None $12,189.0 $22-45 Annual Prev. Abs. Rel. EBITDA/ EPS EPS P/E P/E Share 5/00E 2.31 14.7X 62% 5/99E 1.39 24.5 93% 5/98A 0.68 50.0 179% Aug. Nov. Feb. May FY End 2000E 0.51 0.56 0.60 0.65 May 1999E 0.24 0.32 0.35 0.47 1998A 0.47 0.01 0.02 0.18 ROIC (8/98) NA Total Debt (8/98) 24 Book Value/Share (8/98) $7.85 WACC (8/98) NA Debt/Total Capital (8/98) 0.8% Common Shares 358.5 EP Trend2 NA Est. 5-Yr. EPS Growth 25% Est. 5-Yr. Div. Growth NM 1On 11/4/98 DJIA closed at 8783 and S&P 500 at 1110.8. 2Economic profit trend. 3Com is a leading provider of a broad range of networking equipment including access devices (adapters, modems), systems products (hubs, LAN switches and remote access concentrators) and handheld devices (PalmPilot). It is the second largest publicly traded data network equipment supplier after Cisco Systems. Business Remains Healthy Overall there is no change in guidance from the last conference call and there certainly does not seem to be any sense of panic at the company. The best opportunities for operating margin expansion will come in the November and May quarters which is consistent with our model. This quarter is just as back end loaded as the August quarter (i.e. 45-50% of business in the last month) but seasonal factors give us more comfort this quarter than last quarter. Systems business is doing fine and contrary to some reports, stock out are not a problem and should not limit upside to the current quarter. Remote access business sound OK but we are expecting significant improvements from this business as we enter 1999. Adapters We believe the adapter business if fundamentally strong for 3Com, both because of healthy sales out data, particularly in Europe, and because 3Com is seeing the traditional seasonal strength. 3Com suggests that many of the wins Intel recently cited were achieved over the summer and that they were well aware of the situation. While Intel has done well in the OEM business we not believe all the cards are on the table. We believe 3Com will make additional announcements in the near term. We believe 3Com is prepared from a cost and a product stand point for moderate pricing actions on adapters in H1:99 and this is factored into the flattish revenue guidance for this sector in FQ3:99. We have pointed out on several occasions that 3Com's adapter revenues are much broader than just desktop adapters and chips. We note that the mobile business (adapters and modems) is probably about 1/3 of total client access sales. While 3Com has been at somewhat of a marketing disadvantage relative to Xircom in this space, 3Com will have wins (announcable in a few months) that are likely to counter any wins Xircom could achieve at Dell or other OEMs. We are not worried about 3Com's mobile business Modems Modems get a seasonal lift but business is not as strong as the adapter segment and it is more back end loaded. Shipments into the channel have been strong as resellers stock product and sales out should start to accelerate in November and December which is consistent with seasonal patters. The battle for OEMs in modems is similar to that in adapters but competition comes from LU rather than INTC. 3Com supplies DELL, GATE and Packard Bell, while LU has relationships with CPQ, HWP and IBM. 3Com has an objective of broadening its OEM base within the next year but needs to wait for the next PC design cycle.