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3Com says profits rise on Palm, networking sales

3Com's fiscal first-quarter profit rises 38 percent on the strength of sales of its Palm handheld computing devices and lesser gains in networking systems.

3Com's fiscal first-quarter profit rose 38 percent on the strength of sales of its Palm handheld computing devices and lesser gains in networking systems.

The data communications equipment company reported profit from operations rose to $119.3 million, or 33 cents a share, for the quarter, compared with $86.7 million, or 24 cents per share, for the same period a year ago.

The company was expected to earn 24 cents a share, according to First Call. Estimates ranged from 17 cents to 26 cents. Analysts expected revenue of about $1.39 billion to $1.45 billion.

Quarterly revenue fell about 1 percent to $1.39 billion from $1.41 billion last year.

"We took decisive steps to improve our operational performance," said 3Com chief executive Eric Benhamou. "We're encouraged by our results in a traditionally slow season and we look forward to improving on that in the fall." Executives noted that the second quarter is traditionally 3Com's strongest in the fiscal year.

Regional sales were slow in Europe but strong in Asia, Canada, and Latin America, executives said.

3Com said sales of its Palm electronic organizer increased 50 percent to $174.2 million. The company also reported a 9 percent increase in sales of its corporate networking systems, such as switches, hubs, and routers, which link computers together.

"Their core systems business is doing fairly well," Hambrecht & Quist analyst Erik Suppiger told Bloomberg. Suppiger rates 3Com a "market perform."

3Com executives also touted improved operational efficiencies that have kept expenses lower.

"We've substantially improved operational performance. That's being smarter, more efficient," said 3Com president Bruce Claflin. "This is not a fluke. We consciously planned this a year ago and it's delivering now."

But the company's personal connectivity business, which makes analog modems and network connection cards for personal computers, slumped 19 percent from year-ago results. 3Com is increasingly shifting its focus in that market to cable modems and high-speed digital subscriber line (DSL) cards.

For example, 3Com has boosted its research and development spending on "broadband" technologies. Executives said the company will soon announce it has signed large DSL deals with two Baby Bells, but declined to specify which of the local phone companies are involved.

In its last earnings announcement in June, 3Com executives warned Wall Street that revenue may decline sequentially in the first quarter because of continued slow sales of analog modems and network interface cards.

3Com's networking business represented 48 percent of sales during the quarter, while personal connectivity products accounted for 39 percent, and the Palm division represented 13 percent. International sales represented 45 percent of 3Com's quarterly sales.

3Com has spent the past year restructuring, moving from its traditional slow-growth markets to emerging businesses, such as home networking, DSL and cable modems, Internet telephony, and wireless technology. 3Com last week also announced plans to spin off its Palm Computing division, so the company can focus its efforts on networking equipment.

3Com executives generally expect revenue from the second half of fiscal year 2000 to increase from the first half as sales from new emerging businesses, such as home networking, grow.

The company also announced 12 new products for small- and medium-sized businesses today, including a new DSL router and a firewall product for small office networking.

Bloomberg and News.com's Wylie Wong contributed to this report.