Tech Industry

3Com surprises Wall Street

The data networking firm beats analysts' expectations by 4 cents, the latest sign it may have overcome a tumultuous year to return to growth.

Meeting Wall Street whispers of an upside surprise, 3Com beat analysts' expectations for its fiscal 1999 first quarter by 4 cents, the latest sign that the data networking giant may have overcome a tumultuous fiscal 1998 to return to sustained growth.

3Com reported earnings of $86.7 million, or 24 cents per share, excluding a pre-tax credit of 3Com at a glance $10.2 million related to a restructuring that occurred in the aftermath of the US Robotics merger.

A consensus of analysts' estimates from First Call had pegged the company's earnings at 20 cents per share.

But just as struggling competitor Cabletron Systems yesterday beat estimates that were a far cry from the company's formerly booming growth, 3Com weighed in with earnings that, while above expectations, were far below previous levels.

3Com sales topped $1.4 billion for the quarter--an increase over the company's fiscal 1998 fourth quarter but far below last year's fiscal first-quarter performance of nearly $1.6 billion. 3Com posted a 15-cent loss for the first quarter of fiscal 1998 due to charges related to its merger with USR.

However, the current quarter's results represent a boost compared with the company's fourth-quarter performance, in which 3Com posted earnings of $63.6 million, or 17 cents a share.

Including the pre-tax credit, 3Com posted earnings of $93.7 million or 26 cents per share for its fiscal 1999 first quarter.

Eric Benhamou, 3Com's chairman and chief executive officer, recalled that he had said the company "turned the corner" at the end of its 1998 fiscal year.

"It is indisputable these positive trends are continuing," he said today. "We're growing and gaining share in many segments."

Quarter-over quarter, 3Com's income grew 32 percent.

3Com's stock has been inching upward since the beginning of the month due, in part, to anticipation of strong results.

The company has weathered a downturn in the networking industry that has left more than a few competitors reeling. Previous expectations of blow-out growth have been replaced with more conservative estimates, reflecting the changing dynamics of the once-booming market segment.

Only Cisco Systems, and more recently Ascend Communications, have been relatively immune to various uncertainties thus far on the data side of the market.

3Com reported that 51 percent of revenues for the quarter, or $721.9 million, came from client access products such as modems and networking cards-a 3 percent sequential increase. Sales of systems products, such as remote access equipment and switching devices, grew 2 percent over the previous quarter to $683.6 million.

The company said that sequential growth would have largely been flat from quarter-to-quarter without growth in the company's PalmPilot personal digital assistant, or PDA, business.

Benhamou said forthcoming agreements with several access providers to install 3Com equipment are further evidence of the company's resurgence. The CEO also divulged that the company would announce a partnership with Motorola later this week to build a data access network linked to the company's huge cellular deployment.

The CEO said he was "particularly encouraged" by the quarterly performance given historical weakness of 3Com's business over the summer months.