3Com Posts Smaller Loss on Cost-Cutting

Network equipment maker 3Com Corp. (COMS) 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. 


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." 


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.