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3Com Shares Tumble on Lowered Revenue Forecast

By Reuters
Published | Updated

CHICAGO – 3Com Corp. (COMS), a smaller rival of telecommunications equipment maker Cisco Systems Inc. (CSCO), Friday lowered its revenue and gross margin forecasts for its fiscal first quarter, sending its shares down more than 10 percent.

Telecommunications equipment makers have been just starting to recover from a three-year slump in demand due to the overcapacity built by big phone companies. In June 3Com Chief Executive Bruce Claflin said the market for its networking gear was improving.

But 3Com is facing the pressure n and Dennis Connors, executive vice president of worldwide operations, were resigning. Both executives had been unwilling to relocate from California after 3Com shifted its headquarters to Marlborough, Mass., from Santa Clara.

And 3Com's head of North American sales, Neal Oristano, left around the same time, according to previous reports by industry analysts who said he was instrumental in turning around the region.

A company representative could not immediately be reached to confirm that change.

"We feel part of the reason for this miss is due to the recent departures of several senior management members," said Lehman Brothers (search) technology analyst Jiong Shao.

Shao rates 3Com stock "two equal weight." Three weeks ago he cut his price target on the stock to $4.50 from $6.50 a share.

3Com said it now expects to report revenue of $160 million to $164 million for its first fiscal quarter ended Aug. 27. That compares with a June forecast for revenue to be flat to slightly up from $183 million in the fiscal 2004 fourth quarter.

It said gross margins in the quarter are expected to be 38 percent to 39 percent, slightly below its prior forecast of about 40 percent.

In total, sales and marketing, research and development, and general and administrative expenses are expected to be at the low end of the company's prior mid-$90 million range.

3Com in June posted a quarterly loss that was less than half its loss a year earlier and its first year-over-year sales growth in five years.

Shares of 3Com were off 48 cents at $4.21 on the Nasdaq, after earlier dropping as low as $4.13.