3Com warns of wider loss, weaker sales in 2Q

3Com warned Monday that it will post a wider-than-expected loss in its second quarter primarily because its major telecom customers cut back orders and smaller customers either went broke or merged with other firms.

The network-equipment maker said it now expects to lose between 19 cents to 23 cents a share, much worse than the First Call Corp. consensus estimate of 8 cents a share.

It now sees sales coming in between $785 million to $800 million, also below its own guidance of between $870 million to $910 million.

3Com (Nasdaq: COMS) shares, which have provided much drama throughout 2000, closed up 44 cents to $13.38 ahead of the warning but fell below $9 a share in after-hours trading.

"3Com has not been immune to the trends affecting the telecom sector," said CEO-in-waiting Bruce Claflin in a prepared release. "However, we believe this sector has substantial long-term growth opportunities and we are investing accordingly."

Claflin, who currently holds the title of chief operating officer, will take the CEO post at year's end when Eric Benhamou steps down.

The news comes on the heels of similar warnings from the likes of Gateway (NYSE: GTW) and Micron Electronics (Nasdaq: MUEI).

In the release, company officials blamed the "widely published developments in the telecom sector" such as "recent restructurings and organizational changes undertaken by certain large Tier 1 telecom customers" and the "consolidation activities and financing constraints affecting several of the Tier 2 and Tier 3 customers."

3Com shares have collapsed since the March initial public offering of its spin-off Palm Inc. (Nasdaq: PALM). After peaking at $119.75 in March, the stock dropped to a 52-week low of $11.50 last month.

In September, Benhamou will stay on as chairman of both 3Com and Palm along with joining the board of directors at Atrica, another 3Com start-up.

Following its first-quarter results, 3Com predicted it would post sequential revenue growth of between 8 percent to 13 percent this quarter.

Last quarter, it lost $41.3 million, or 12 cents a share, on sales of $933.8 million, beating the consensus estimate by 21 cents a share.

Eleven of the 19 analysts following the stock rate it either a "buy" or "strong buy."

Analysts were expecting a loss of 16 cents a share in the fiscal year.