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3Com warns on results
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December 4, 2000: 5:41 p.m. ET
Networking company cites slower spending by telecom customers
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NEW YORK (CNNfn) - Networking equipment company 3Com Corp. warned after the close of markets Monday that its fiscal second-quarter revenue and results will be weaker than analyst expectations because of slowing capital equipment spending by telecom companies.
3Com (COMS: Research, Estimates) said that it expects its revenue for the quarter ended Dec. 1 to be between $785 million and $800 million. Excluding exited product lines, 3Com's ongoing businesses are expected to account for $765 million to $780 million in sales. This represents a substantial shortfall from the $870 million to $910 million previously targeted by the company in September.
 Revenue in that range should result in a pro forma net loss per share of approximately 19 cents to 23 cents, compared with a previously targeted net loss of 7 cents to 9 cents per share, 3Com said. The current mean of analysts' expectations for the second quarter is a loss of 8 cents, according to First Call.
3Com will release results for the fiscal 2001 second quarter after the close of markets on Dec. 21. The company's stock declined $3.50 to $9.87 in after-hours trading.
"The widely published developments in the telecom sector contributed significantly to 3Com's lower-than-expected sales for the quarter," the company said in a statement. "Specifically in North America, the recent restructurings and organizational changes undertaken by certain large Tier 1 telecom customers combined with the consolidation activities and financing constraints affecting several of the Tier 2 and Tier 3 customers, resulted in deferrals of capital spending."
"3Com has not been immune to the trends affecting the telecom sector," said Bruce Claflin, 3Com's president and chief operating officer. "However, we believe this sector has substantial long-term growth opportunities and we are investing accordingly. In addition, our Commercial and Consumer Networks business posted a second consecutive quarter of sequential sales growth."
Second-quarter sales in 3Com's Carrier Networking business were between $95 million and $100 million, representing a decrease of
40 percent from the previous quarter ending Sept. 1, and a decline of about 30 percent from the second fiscal quarter a year ago.
Other telecom equipment makers hurt
Other makers of telecommunications and networking equipment also have been hurt by slowing capital spending. On Nov. 1, Canadian networking giant Nortel (NT: Research, Estimates) said its first-quarter results would come in a penny shy of estimates. Sales are expected to be between $8.1 billion and $8.3 billion, the No. 2 maker of communications gear said, falling short of First Call forecasts of $8.4 billion.
Likewise, Lucent (LU: Research, Estimates) said in November that it could cut up to 10 percent of its work force, or up to 10,000 jobs, in a bid to streamline its operations and end a series of disappointing earnings results. The company also ousted its chief executive officer in October and warned it expected its first-quarter revenue to decline about 7 percent.
By contrast, Cisco Systems Chief Executive John Chambers told analysts at a meeting Monday that the company is standing by its aggressive target of between 50 and 60 percent annual revenue growth. "Let me remind everyone in this room that we are not changing guidance," Chambers told analysts. However, Chambers declined to comment on how his company's business was progressing during its current fiscal second quarter ending in January.
3Com's market value has shrunk substantially since it spun off its Palm handheld computing unit. Palm (PALM: Research, Estimates), once a small unit within 3Com, now has a market value of almost $25 billion, while the remainder of 3Com had a market value of only $4.7 billion as of Monday's close. 
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