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3Com to reorganize after reporting loss

The networking equipment maker reports a third-quarter loss and announces a restructuring plan.

Networking equipment maker 3Com on Wednesday reported a third-quarter loss and announced a restructuring plan.

The company said its loss for the third fiscal quarter was $122.8 million, or a loss of 36 cents per share, compared with net earnings of $80.3 million, or 22 cents per share, a year earlier.

Revenue for the quarter, which ended March 2, fell 18 percent to $629.6 million.

Wall Street analysts had predicted a third-quarter loss of 33 cents per share, according to a poll of nine analysts by First Call. That estimate, however, includes predictions from several analysts who did not revise their estimates after 3Com announced a profit warning last month. Among those who revised estimates, analysts predicted a loss of 43 cents per share, according to First Call and 3Com.

The Santa Clara, Calif.-based company also announced a restructuring plan intended to save $1 billion per year. Previously announced layoffs and cost-cutting measures in the third quarter will account for $250 million.

Another $250 million will be generated by 3Com's reducing the cost structure of its broadband modem business and discontinuing its consumer Internet Appliance lines, the company said.

The remaining $500 million will come from improving efficiencies and simplifying its business structure, product lines and systems. 3Com will take restructuring charges over the next two to four quarters related to the streamlining moves.

3Com last month issued a profit warning for its third quarter, blaming the slowing U.S. economy and sluggish sales to telecommunications carriers and lower profit from its high-speed modem business because of sharp drops in prices for cable and DSL (digital subscriber line) modems.

Excluding one-time costs, the network equipment maker had expected to post a third-quarter loss of $135 million to $145 million. The company had previously predicted a loss of $80 million to $100 million.

3Com executives had predicted revenue would be in the range of $625 million to $640 million, down from the company's previous projection of $725 million to $750 million.

3Com is being hurt by the same malaise that has afflicted Cisco Systems, Nortel Networks, Lucent Technologies and others in the network equipment market. Nortel and Lucent have issued profit warnings, while Cisco has announced flat sequential revenue growth for the next two quarters.

They all blame the U.S. economy and slower sales of networking hardware to telecommunications service providers. Many emerging carriers, such as DSL service providers, have struggled financially and have slowed their spending on networking equipment.

The slowdown comes at a bad time for 3Com, which is in the midst of its latest turnaround effort. The company, which laid off 1,200 employees last week, now has issued an earnings warning for two straight quarters.

Wednesday's moves come nearly a year after a major restructuring by 3Com. After spinning off Palm, 3Com last March shed its slow-growing analog modem business and peeled away its network equipment arm for larger businesses. The company recently announced plans to spin off its carrier equipment business and is now catering to small and midsize businesses and consumers.