By Stephen Phillips 3Com Corp yesterday announced fiscal first-quarter profits ahead of market expectations but stumbled on falling revenue as sales of its handheld computers and computer networking equipment failed to pick up the slack from declining modem sales. Profits for operations for the three months to August 27 rose to $119.3m or 33 cents […]
By Stephen Phillips
3Com Corp yesterday announced fiscal first-quarter profits ahead of market expectations but stumbled on falling revenue as sales of its handheld computers and computer networking equipment failed to pick up the slack from declining modem sales. Profits for operations for the three months to August 27 rose to $119.3m or 33 cents a share from $86.7m or 24 cents a share in the year- ago period. The 38% profit hike saw the number-two computer networking equipment manufacturer beat the outer limit of analyst earnings estimates, which ranged between 17 cents and 26 cents according to a poll by First Call Corp.
Including a $23.6m gain from divestments and a pre-tax credit of $2.1m related to the acquisition of Skokie, Illinois-based modem maker, US Robotics Inc, net income in the latest quarter stood at $137.5m or 38 cents a share. This was also up from net income of $93.7m or 26 cents a share, a year ago, which also included one- time costs. But revenue dipped over the twelve months by 1.3% to $1.39bn from $1.41bn – coming in at the lower limit of the range of analyst projections.
Santa Clara, California-based 3Com reported soar-away 50% growth in revenue to $174.2m from sales of its hand-held computing products, including market-leading electronic organizer, the Palm. And revenue from sales of computer networking systems climbed 9% to $674.2m year-on-year. But this growth wasn’t enough to offset continuing decline in revenue from sales of so-called personal connectivity products such as telephone-based modems or computer connection cards which fell 19% to $539m, dragging down overall figures.
The firm’s Palm computing devices now account for 13% of sales up from 10% in the last fiscal year. Analysts at financial services house, Merrill Lynch, have warned that the proposed spin off, announced last week, of 3Com’s Palm Computing Unit by next summer could unmask the firm’s underlying low valuation.
Eric Benhamou, 3Com’s chairman and chief executive officer, used yesterday’s results announcement to affirm the company’s focus on sales of cheaper networking products to small-and medium-sized businesses which it hopes will kick-start a sales revival. He pointed out that 3Com had shown 30% growth in revenue from the relatively untapped smaller corporate market in the last year. The strategy pulls 3Com away from arch rival and market-leading network equipment maker, Cisco Systems Inc, which is targeting mainly large corporate customers with its internet telephony products.
Christopher Paisley, 3Com’s chief financial officer trumpeted supply chain management achievements in the quarter, drawing attentions to efforts to tame the firm’s notoriously unruly inventory – which in the same quarter last year tied up $354m. Unsold products still accounted for $351m in the most recent quarter but inventory turnover in the quarter stood at a multiple of 8.3 – 3Com’s best performance in recent years.
The firm also pointed to healthier cashflow with cash balance up $44m to $1.7bn despite spending $392m on buying back 15.4 million shares. 3Com’s shares stood at $27.30 at close of trading yesterday, before the results announcement. The shares have lost about 40% this year. á