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

To: joe who wrote (28042)	2/11/1999 6:58:00 PM
From: Wigglesworth	Read Replies (2) \| Respond to of 45548

Long-term we are all dead, enthusiastically dead!! Credit Suisse First Boston Corporation CREDIT SUISSE FIRST BOSTON CORPORATION Equity Research Americas U.S./Technology/Data Networking STRONG BUY LARGE CAP 3Com Corporation (COMS) Laundry List of Issues Have Investors Worried - Visibility Will Not Improve Until End of Quarter Summary Four issues have impacted the stock: Intel's adapter product announcement, fallout from a distributor's pre-announcement, comments from Cisco on market dynamics, and the back-end loaded nature of quarter. Of all these were are most concerned with visibility and less concerned with the recent Intel, Cisco and Tech Data issues. Although not new, the back-end loading of FQ3 - over 50% of business remains to be done in the month of February - creates significant, albeit manageable, risk. We believe that as visibility into May quarter increases, the stock should perform better as investors look through the seasonally tough FQ3. While we share some near term visibility concerns, we remain enthusiastic about 3Com's long term prospects; we still are some near term risk in the stock and will become more aggressive buyers as the visibility improves. Price Target Mkt.Value 52-Week 2/3/991 (12mo.) Div. Yield (MM) Price Range USD 38.3 $55 $0 None $14,102.1 $51-23 Annual Prev. Abs. Rel. EV/ EBITDA/ EPS EPS P/E P/E EBITDA Share 5/00E $2.30 16.7X 58% NA NA 5/99E 1.40 27.4 85% NA NA 5/98A 0.68 56.3 176% NA NA Aug. Nov. Feb. May FY End 2000E $0.51 $0.55 $0.60 $0.64 May 1999E 0.24 0.36 0.35 0.45 1998A 0.47 0.01 0.02 0.18 ROIC (11/98) NA Total Debt (11/98) $24 Book Value/Share (11/98) $8.02 WACC (11/98) NA Debt/Total Capital (11/98) 0.8% Common Shares 68.2 EP Trend2 NA Est. 5-Yr. EPS Growth 25% Est. 5-Yr. Div. Growth NM 1On 2/3/99 DJIA closed at 9366.8 and S&P 500 at 1272.1. 2Economic profit trend. 3Com is a leading provider of a broad range of networking equipment including ac-cess devices (adapters, modems), systems products (hubs, LAN switches and re-mote access concentrators) and handheld devices (Palm Pilot). 3Com is the number 2 supplier after Cisco and has strong manufacturing. and distribution strengths. Key Points 3Com shares collapsed yesterday after concerns relating to four particular issues surfaced - Intel products, Tech Data earnings pre-announcement, Cisco results and backend loading. While we believe most of these issues are overblown, we are still not able to provide comfort that 3Com can make the quarter as it is simply too early to tell. This is largely a function of how backend loaded this quarter is (over 50% of revenues in the last month) rather than a change in fundamentals. As is typical, the company is not providing intra-quarter guidance and this is exacerbating the fear factor. In our opinion, the stock is discounting a miss of a few cents at this point and represents an attractive buying opportunity, albeit with a significant degree of volatility attached for investors willing to look through the current quarter. There are four factors that have impacted the stock: 1) Intel launched new adapter product/Analog Devices relationship As discussed in our February 3, 1999 First Call note, we believe the Intel product launch and associated benign pricing moves should be read as a positive for 3Com. We discussed this with 3Com and they do not view it as a material change in the competitive environment. Intel also announced a relationship with Analog Devices that could have competitive implications for 3Com. The two companies will develop a DSP core (due by 2H:99) which could be used for many communications applications such as cable modems, xDSL platforms, wireless devices, set top boxes, etc. This relationship has no near term implications but needs to be monitored. 2) Tech Data pre-announcement Weakness appears to be margin related with underlying problem associated with direct-sales PC vendors taking share in the channel. Tech Data's networking business about 18-20% of overall, but is not experiencing undue pricing pressure thus we believe impact on 3Com is only guilt by association (Tech Data is an important but not the largest 3Com reseller) PC weakness in distribution should be made up by direct PC vendors which is a net neutral for 3Com. We will monitor the channel issues as this could be a material factor going forward. 3) Cisco conference call/enterprise results Cisco cited the month of December being slow with a recovery in January. This likely means a slow start for 3Com (first month of FQ3 is December) but this is consistent with expected quarterly profile and, at the analyst meeting in January, 3Com suggested business was picking up as expected. Cisco cited strong two tier growth (run rate nearly doubling vs. a year ago) which is well ahead of 3Com. We find little surprise in the fact that Cisco is growing faster than 3Com and believe that Cisco's growth comes more at expense of others than 3Com. For the second quarter in a row that Cisco cited slowness in the Enterprise business with spotty business by vertical market (i.e. financial services not booming). 3Com has most of its business in the enterprise but we do not view this as a new issue. The Most Significant Issue 4) Back-end loading - inability to lend comfort has investors spooked The biggest issue (and the one that is the most real) is the high degree of back-end loading - 3Com will do 50%-plus of its quarter in the last month. While this is not different than expected, it implies limited visibility until the last week or two of the quarter. This is why we believe the stock will be choppy through February. Our read of the body language is that this remains a tough quarter but the company is not changing the delivery of its guidance (i.e. still not giving month to month guidance) nor do we get the sense they are lowering expectations. We believe 3Com entered FQ3 with somewhat of a cushion (don't show a 5 cent upside surprise in November with out a bit of confidence in next quarter), but don't know if it will be enough if things are getting tougher. What Gets the Stock Moving - Time With sentiment having shifted from positive to negative and the stock having broken down, only better visibility will turn the stock around. By the end of February, we believe investors will begin to look through FQ3 to FQ4 which is seasonally stronger, has better product momentum (Palm and adapters should be stronger), and improving chances for operating margin improvement. 3Com needs to build the confidence of the Street by showing they can manage the numbers, thus we believe they have been setting expectations with a bit of a cushion. Long term we remain enthusiastic about 3Com's prospects and would look to improving visibility as the catalyst to accumulate positions.

To: joe who wrote (28042)	2/11/1999 7:25:00 PM
From: mr.mark	Read Replies (1) \| Respond to of 45548

this may be old news, i hope not. pc magazine's 2/9/99 issue has a cover story titled "top 100 web sites". 3com is picked under the computing companies category along with 4 other sites, such as dell and microsoft. zdnet.com Computing Companies 3Com Corp. 3Com is a huge company with products in more than 35 categories, yet this site is crystal-clear about getting you the information you need, be it about routers or modems. The best example is probably the coverage of Palm-based computing. Go to the affiliated site at www.palm.com to find out anything you need to know about the 3Com PalmPilot or Palm III. 3Com has a lot to talk about, and this site does a great job getting the messages across. www.3com.com