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3Com hit with shareholder suit

Plaintiffs say the networking company presented misleading information and engaged in insider trading.

3Com (COMS), which saw its stock plummet as competition heated up in one of its key markets, has been hit with a shareholder lawsuit, plaintiffs said today.

The shareholders' suit, filed in California's Santa Clara Superior Court, alleges the networking company, along with its officers and directors, presented misleading information and engaged in insider trading from September 24, 1996, to February 10 of this year.

"We have seen the plaintiffs' release but have not been served with the suit, so it's premature to comment," said Leslie Davis, a 3Com spokeswoman.

Suit backers contend that 3Com projected revenue and earnings growth ahead of analysts' estimates for the first and second quarters of fiscal 1997. They also claim that the company, when it achieved those targets, attributed the results to demand for its Fast Ethernet adapter cards, stackable hubs, and switching hardware.

3Com then forecast that its third and fourth quarters would increase sequentially and reach higher levels than previously projected, the suit says. The stock rose from about $52 a share before late September to a high of $81-3/8 a share in mid-December. Meanwhile, 10 3Com "insiders" allegedly sold 896,000 shares for approximately $59.3 million. But in early February, the stock started to fall as rumors began to circulate of impending competition in Fast Ethernet adapter cards from Intel, according to the suit.

The company announced on February 10 that third-quarter revenues would fall short of the previous quarter and that earnings would be less than analysts' current estimates, due to competitive price-cutting on adapter cards and weaker demand for its products. The stock plunged to $37 a share, marking the biggest one-day decline in 3Com history.

But as the company reported its third-quarter results last week, it gave Wall Street another surprise. The stock closed Friday at 33-1/8, down 1/2 a point after the company announced a 17.4 percent jump in net income to $87.6 million the day before.

3Com shares closed today 32-3/4, down 3/8 from Friday's close, as tech stocks took a hit. Plaintiffs in the case are seeking undisclosed damages.