3Com warns of lower Q2 profit

Shares of 3Com Corp. fell $3.06 to $35.31 on Tuesday after company officials announced that second-quarter sales and revenues would be significantly lower than first expected, partly due to reducing channel inventories.

Company officials said the reduced inventories with their channel partners and revised inventory practices will reduce sales for the quarter ended Nov. 30 from about $1.5 billion to between $1.22 billion to $1.24 billion. Also, pricing pressure for high-end networking products and sluggish sales in Europe will mean the Santa Clara, Calif., firm's earnings will fall woefully short of expectations.

First Call consensus originally expected 3Com to post a profit of about 50 cents per share in the quarter. Now that figure has been readjusted to closer to 9 cents per share.

"They're in a tough spot, but this isn't totally unexpected," said Alfred Tobia, an analyst at NationsBanc Montgomery Securities. "We had already downgraded the stock and lowered our earnings figure to about 9 cents before (Tuesday's) announcement."

The new outlook necessitates planning for further inventory reductions in the company's modem and systems businesses during the third fiscal quarter.

"As more and more networking products reach end users through networking partners, responsive inventory management is becoming a key competitive differentiator for both the networking channels and their vendors," said Eric Benhamou, 3Com's chairman and CEO.

Last quarter, 3Com posted a loss of $146 million, or 43 cents per share, on sales of $1.6 billion. The bulk of the loss was attributed to a one-time charge associated with the acquisition of high-speed modem manufacturer U.S. Robotics Corp.

In the second quarter of last year, 3Com posted a profit of $115 million, or 33 cents per share, on sales of $1.4 billion.