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3Com stock drops 26%

The networking company's stock plummets as its quarterly earnings are expected to take a hit.

3Com (COMS) saw its stock plummet more than 26 percent today as the company announced that its earnings will suffer from slower growth and increased price competition on its major product.

The networking company's shares fell to 37-1/2, down over 13 points from Friday's close of 50-3/4.

3Com said it expects to report earnings in the range of 40 to 50 cents a share, compared to 42 cents last year. Analysts had expected the company to report earnings of 60 cents a share.

Meanwhile, 3Com expects to report revenues of $770 million to $810 million for its third quarter ending February 28, up from $606 million for the same quarter a year earlier. Analysts attribute the earnings decline and stock drop to a price war Intel has launched against 3Com over the company's adapter cards.

"Intel cut prices on adapter cards by 44 percent and 3Com matched it, which is taking $30 million off of revenue and profits," said Bert Hochfeld, an analyst with Josephthal Lyon & Ross.

He explained that the distribution channels were backed up with products, which reduced the demand from those channels during the quarter. As a result, the high inventory caused a slowdown in revenues generated from those channels.

"[The second quarter] was a huge quarter of selling into distribution channels. Now, 3Com distributors are overstocked," Hochfeld said.

Although the company's expected revenue range is up over a year ago, it's a slowdown from record revenues of $820.3 million reported in the previous quarter.