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3Com warns on profits
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March 2, 1999: 7:29 p.m. ET
Networking company says PC sales slump partly to blame for fiscal 3Q hit
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NEW YORK (CNNfn) - Networking products maker 3Com Corp. said Tuesday it would fall short of Wall Street earnings targets in its latest quarter, as a drop in demand for personal computers hurt sales.
The Santa Clara, Calif.-based company warned net income from ongoing operations in its recently-ended fiscal third quarter will come in around 23 cents per diluted share, far short of the 36 cents expected by analysts.
3Com is expected to release its earnings for the quarter ended Feb. 26 -- already a period typically soft for networking companies -- in the third week of March.
Third-quarter revenue is expected to come in between $1.410 billion and $1.415 billion, the company said, up from $1.25 billion one year ago but a far cry from what most analysts expected.
3Com (COMS) shares took a pounding shortly ahead of the announcement, tumbling 3-11/16 to 27 on massive volume of 31 million shares in Nasdaq trading. The company made its announcement after the bell Tuesday.
"Our seasonally weak third quarter was exacerbated by several factors," said Eric Benhamou, the company chairman and chief executive officer, in a statement.
Among those factors were an unforeseen slump in U.S. and Latin American markets for enterprise products, weaknesses in its two-tier distribution channel and lower-than-expected sales by the personal computer makers that make up a large part of its customer base.
Sales to original equipment manufacturers of PC's have traditionally made up 26 percent to 28 percent of 3Com's business, company executives said during a call with analysts on Tuesday.
At least one analyst said he would reserve judgment about how the profit warning could impact 3Com's rivals, including Cisco Systems (CSCO), Lucent Technologies (LU), and Canada's Northern Telecom (NT).
In fact, part of the trouble that 3Com faced, said Farrohk Billimoria of Hambrecht & Quist, was the competition from those other network sector players.
"We can't draw any conclusions just yet," Billimoria said, insisting that price competition is putting a squeeze on 3Com. "They're moving to an enterprise market where there are strong players -- ones that are flexing their muscle."
In a research note shortly before the 3Com warning, Merrill Lynch analyst Joseph Bellace said he expects its Palm computing platform -- led by its Palm Pilot devices -- will be one of its fastest-growing products in the third quarter.
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3Com
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