3Com posts wider Q4 loss

Ben Klayman

CHICAGO: 3Com Corp. posted a wider quarterly loss than last year as it continued restructuring and forecast sales that were lower than analysts were expecting for the current quarter.

The network-equipment maker said sales in the current fourth quarter would be flat to slightly higher than third quarter's $171.8 million. Analysts had forecast fourth-quarter revenue of $184.1 million, according to Reuters Research, a unit of Reuters Group Plc.

"It's a company that's still working through transition and their (sales) visibility is still low," said Pacific Growth Equities analyst Erik Suppiger, who has an "underweight" rating on the stock and does not own shares.

Shares in 3Com, a smaller rival of Cisco Systems Inc., slipped to $6.95 in after-hours trading on INET from Thursday's closing price on Nasdaq of $7.06.

Suppiger said 3Com's operations have stabilized, and gross profit margin in the fiscal third quarter was slightly better than expected, but sales were slightly disappointing.

3Com Chief Executive Bruce Claflin said demand among its corporate customers, also known as the enterprise sector, has improved.

"While we are a long way from the 'good old days' of the late '90s, we do believe the industry is again growing, albeit modestly," he said on a conference call with analysts.

He said the company is well positioned as it competes in the areas where customers are spending -- wireless, security and Internet voice transmission. 3Com's third-quarter sales in those areas rose 10 percent over the previous quarter.

The Marlborough, Massachusetts-based company reported a net loss in its fiscal third quarter of $85.6 million, or 22 cents a share, compared with a loss in the year-ago quarter of $79.2 million, or 22 cents a share.

The quarter, which ended on Feb. 27, included about $40 million in restructuring charges.

Third-quarter revenue finished below the $176 million analysts had expected according to Reuters Research. Sales in the year-ago quarter were $216.5 million, and $181.9 million in the previous quarter.

Claflin said 3Com strengthened its product lineup with gear from its new joint venture with Huawei Technologies, China's largest telecom equipment maker.

3Com formed the venture last November. It holds a 49 percent stake, with an option to raise that to 51 percent in two years. It has said it expects a substantial portion of its revenue will come from products developed by the joint venture in two to three years.

3Com's gross profit margin in the third quarter was 35 percent of sales, up four points from the previous quarter. The company said the increase was due to cost cutting, improved product mix and less discounting.

The margin should rise another two to four points in the fourth quarter as the company realizes the full benefit of outsourcing, 3Com Chief Financial Officer Mark Slaven said.

© Reuters