3Com posts narrower loss on cost-cutting

SANTA CLARA: Network equipment maker 3Com Corp. on Thursday posted a narrower

third-quarter loss before charges after slashing costs in the face of sagging

sales and a continuing downturn in the telecommunications sector.

3Com said there were clear signs that sales of corporate network equipment

--its major business line -- were bottoming out and that it was making progress

toward its goal of profitability before charges in the current quarter but could

not guarantee that target would be met.

The company, an Ethernet networking standard pioneer, posted a loss before

charges of $42 million, or 12 cents a share, in the quarter ended March 1,

compared with a loss before charges of $122.8 million, or 36 cents a share, a

year earlier. Analysts on average had expected 3Com to post a loss excluding

charges of 16 cents, with individual estimates ranging between a loss of 14

cents and a loss of 16 cents, according to research firm Thomson Financial/First

Call.

On a net basis, the company posted a loss of $236 million, or 67 cents a

share, versus a net loss of $246 million, or 72 cents a share, a year earlier.

Revenues dropped 43.5 percent to $356 million from $629.6 million a year earlier

and down 10 percent from $393.9 million in the prior quarter.

3Com, which expects fourth-quarter revenues to be in a range of down 5

percent to up 5 percent from the third quarter, said it would not look to an

improving market to restore profitability but would continue to practice

"disciplined cost and expense management" for the time being.

"Market conditions may be stabilizing but they're not dramatically

improving," 3Com president and chief executive Bruce Claflin told Reuters.

"Our whole path to profitability is not based on dramatic revenue growth,

but on disciplined operational management ... We continue to have a very bipolar

view: In the near term very cautious, but very optimistic long term."

Claflin said 3Com was driving toward its goal of profitability before charges

in its current fourth quarter. "While I cannot guarantee it will be

achieved, I believe, at a minimum, we will demonstrate considerable progress

toward its achievement," Claflin said.

Lower costs, lower revenues



3Com said the "enterprise" business market, which provides the company
with half of its business, is showing "clear signs of bottoming out, both

in Europe and most recently, the United States."

However, businesses remain careful with network equipment investment,

prompting 3Com to continue with its cost-cutting drive. The company's

third-quarter operating expenses were $307.2 million, down 30 percent from

$439.2 million a year earlier.

Revenues from 3Com's Business Networks Company slipped 1 percent to $191

million from the prior quarter -- better than the unit's average third-quarter

seasonal decline of 5 percent over the previous four fiscal years.

Meanwhile, revenues from the CommWorks unit, which sells to the hard-hit

telecom market, fell 19 percent to $52 million from the second quarter amid

slower seasonal spending and falling capital spending by telecom carriers.

Revenues from the Business Connectivity Company, which develops PC Cards,

declined 19 percent to $111 million from the second quarter amid a seasonal

drop, slowing PC sales and as PC makers add network connectivity to hardware.

Third-quarter sales fell across all regions from the prior quarter. Sales in

Europe dropped 15 percent, sales in the Asia-Pacific Rim region fell 9 percent

and sales in the Americas dipped 5 percent. The results were mostly solid, said

Merrill Lynch analyst Samuel Wilson.

"Revenue was a little below what the Street expected, but they beat the

Street on the bottom line," Wilson said. "It looks like cost-cutting

is working really well ... They will still try for profitability in the fourth

quarter, but I think their chances are 50-50. But overall the third quarter was

a positive quarter."

Long march toward profits



3Com, which spun off handheld device maker Palm Inc., has labored to create a
smaller company amid a brutal industry downturn that slashed demand for its

products. The company in January said it would shed 500 positions after cutting

5,200 jobs throughout last year.

3Com also has worked to rebound from costly mistakes. The company dumped its

poorly received Audrey product last March after launching the $499 consumer

appliance for Web surfing in October 2000. The decision to dump Audrey was

followed by 3Com's June exit from the high-speed modem business.

The company has since focused on wireless and Internet telephony networking

gear for telecom carriers and businesses, and on trying to cut $1 billion in

operating costs by the end of this fiscal year ending in May.

3Com shares closed on Thursday at $5.44, up 21 cents, or 4 percent, on Nasdaq,

while the American Stock Exchange Networking Index closed 2.9 percent higher.

3Com shares climbed in after-hours trade to $5.70 on Instinet after the company

released the third-quarter results.