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3Com's Q4 loss narrows, sees poor telecom spending

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CIOL Bureau
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Jim Christie

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SAN FRANCISCO: Network equipment maker 3Com Corp. on Tuesday posted a sharply

narrower fourth-quarter loss through cost-cutting even as revenues dropped by

more than 25 per cent.

Shares in the company rose 11 per cent in after-hours trade from the Nasdaq

close even as 3Com forecast that current quarter sales would decline up to 10

per cent further, making more cost-cutting and layoffs necessary.

"Most carriers today have cut and continue to cut," 3Com chief

executive Bruce Claflin told Reuters. "There's relatively little

investment." 3Com lost $23.8 million, or 7 cents per share, in its fourth

quarter ended May 31, compared with a loss of $517.7 million, or $1.52 per

share, a year earlier.

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Revenues were $339 million, compared with $468 million a year earlier.

Excluding charges, 3Com reported operating income of $12.8 million, or 4 cents

per share, compared with a loss excluding charges of $206.3 million, or 61 cents

per share a year earlier.

Wall Street analysts had, on average, expected a loss excluding charges of 2

cents per share, with individual estimates in a range of nil to a loss of 4

cents per share, on revenues of $341.7 million, according to research firm

Thomson First Call.

3Com forecast revenues for its current fiscal first quarter would decline in

a range of 5 per cent to 10 per cent from the fourth quarter, and a

first-quarter loss excluding charges in a range of 3 cents to 6 cents per share.

Claflin said he did not believe the carrier and Internet service provider market

will improve in any "meaningful" way over the course of the company's

new fiscal year.

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Looking to corporate clients



While revenue from telecom carriers and service providers would follow their
declining spending, sales to "enterprise" corporate customers should

grow, 3Com said.

Sales by 3Com's Business Networks Company rose to $196 million in the fourth

quarter from $191.5 million in the third quarter. "It's still a very

difficult market environment, but not a dead market environment," Claflin

said of the expected growth in sales to businesses.

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Claflin said 3Com will go after the enterprise market in a more efficient

manner by combining two units, resulting in an unspecified number of job cuts,

and outsourcing some operations. "We're going to continue to drive down

costs regardless of market conditions," Claflin said. "That's a core

part of our strategy going forward."

Like other makers of equipment used by corporations, telecom carriers and

service providers to direct and manage online traffic, 3Com has been struggling

with a collapse in demand. 3Com in March said it would not look to its sales

growth to restore profitability, but would practice "disciplined cost and

expense management."

At the time, the Ethernet networking standard pioneer and former parent

company of handheld device maker Palm Inc. said there were signs that sales of

corporate network equipment -- its major business line -- were bottoming and the

company was progressing toward a goal of profitability before charges in the

fourth quarter.

3Com on Tuesday also reported the appointment of Mark Slaven as the company's

new chief financial officer, replacing Mike Rescoe, who the company said is

stepping down for personal reasons but would continue to work as an adviser to

Claflin.

(C) Reuters Limited.

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