3Com Gains as Q2 Results Top Estimates

3Com Corp. (Nasdaq: COMS)was up 19/32 at 7 25/32 early Friday after thecompany announced better-than-expected results for the second fiscalquarter and said it plans to operate its carrier networks business as aseparate subsidiary.

The Santa Clara, California-based maker of networking equipment said revenuefor the quarter totaled US$789.5 million, including $22.8 million frombusinesses that are being sold. Sales from ongoing businesses dropped 5percent from the prior quarter, due to a slowdown in demand as severallarger telecom customers announced reorganizations and smaller ones ran intofinancing problems, 3Com said.

The loss before extraordinary items totaled $52.4 million, or 15 cents pershare, compared with a loss of $41.3 million, or 12 cents, in the priorquarter. Analysts had expected a 20 cent loss.

“The significant slowdown in the telecom industry adversely impacted 3Comduring the quarter,” said president and chief operating officer BruceClaflin. “However, we remain bullish on the potential of the telecomindustry and, in particular, the prospects for our carrier networkingbusiness.”

3Com said it will spin off the carrier network business into a separatesubsidiary, CommWorks Corp. The company named Irfan Ali, general manager ofthe business, as president of the new subsidiary.

“CommWorks will have the freedom and resources necessary for success in thecarrier marketplace, while leveraging the financial and technical strengthsof 3Com Corp.,” Claflin said.

The carrier networks business builds Internet protocol (IP) networks fornetwork service providers.

3Com said it will take a charge of between $40 million and $60 million inthe third quarter ending March 2, 2001 to cover the restructuring. Thechange, however, should save between $200 million and $250 million per year,helping the company reach operating profitability in the first quarter offiscal 2002, 3Com said.

“3Com intends to have two growth businesses, each of which generatessuperior financial returns,” said Claflin. “We are committed to obtainingthe benefits of focus, while investing in leadership products and serviceswhich drive profitable growth. All these actions are intended to createincreased shareholder value.”

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