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

To: Doug who wrote (29707)	4/15/1999 4:51:00 PM
From: Al Cano	Read Replies (2) \| Respond to of 45548

Doug: Positive review from SG Cowen for 3COM. Apparently, my response did not register. Anyway, the following information is provide. (Doug, I will provide you with a list of brokers with a positive COMS position. -TO FOCUS INVESTORS ON EMERGING BUSINESS OPPORTUNITIES/BUY Chris Stix/Vijay Rajamani - SG COWEN 1. Probable European Announcements To Focus On Broadband Consumer, Home Networking And Wireless. 2. Palm Division Unlikely To Be Spun Off 3. We Expect That Expenses Will Be Very Tightly Controlled. 4. Buy Retained With $27 Target Price. Outlook Is For Two Quarters With Limited Top-Line Growth. Investment Thesis: 3Com is the leading consolidator in edge networking products (modems, adapter cards, workgroup hubs, and switches). The company continues to have exceptionally strong market positions in adapter cards, hubs, modems, access concentrators and work group hubs and switches. It has a history of gaining share in client products and hubs, and we expect it to continue to do so. While we believe that COMS may face continuing challenges matching the industry leaders' growth rates due to a significant share of its revenues generated by zero to negative-growth hubs, modems and NICs, we do believe the company will achieve positive top- line growth going forward. While operating margins are likely to expand due to expense controls, gross margins are likely to be flat due to the lower margins on the faster-growth emerging businesses. Cash generation has been strong recently, as a result of better collections on accounts receivables and strong inventory management, reinforcing the value story. Our target price of $27 represents 20x C00 EPS of $1.37. Probably COMS Announcements To Focus On DSL, Cable Modem, Wireless, Home Networking. We believe that COMS is likely to make announcements in Europe next week about its emerging growth businesses, including DSL, cable modem, wireless and home networking. Given the premium valuation currently being awarded to high-growth DSL plays such as Tut Systems (TUTS) and Aware (AWRE), focusing the investor community on these businesses probably makes a good deal of sense. In recent discussions with industry participants, we have learned that COMS is likely to speed products to market by buying chips or licensing intellectual property from others for many of these products. By using others' intellectual property, the company can leverage its exceptional brand and distribution to build its sales ramp. Later, as the markets mature, the company will deliver internally developed designs. In addition to time to market considerations, we believe that using others' intellectual property will enable the company to maintain or reduce its expenses. In the near-term (the next two quarters), any upside to earnings is more likely to come from expense controls than from revenue upside. While Q4 (the current quarter) is normally a seasonally strong quarter, the company entered the quarter with inventories at the high end of the range and sell out of the channel is likely to be greater than sell in, thus limiting growth to modest levels for the current quarter.