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THE DAY AHEAD: How will 3Com grow sans Palm Computing?

It's reality check time for 3Com Corp. (Nasdaq: COMS), which might get some attention because it handily beat estimates with first quarter earnings of 33 cents a share. How is this company going to grow its anemic networking business?

3Com, which is spinning off its Palm Computing unit, can now claim it is more focused on its networking business. But clarity doesn't equal growth. The Palm unit hid a lot of flaws.

Going into 3Com's conference call last night, Wall Street was wondering how 3Com planned to jumpstart its networking business.

Wall Street is still wondering.

3Com: Can it grow?

3Com officials talked a good game Tuesday on its conference call, but the strategy for growing the networking business is still unclear.

Yes, we know 3Com will have more clarity and focus without the Palm unit. We also know 3Com will pocket a nice chunk of change from the Palm IPO. It also has done a nice job cutting costs. However, we also know 3Com plays in a mature market and doesn't have Wall Street's confidence.

The bottom line is the top line revenue growth isn't there. Total revenue was down 1 percent from $1.41 billion a year ago to $1.39 billion. If you back out the Palm-fueled growth, 3Com's revenue is worse than underwhelming -- sales are down 6 percent.

Sales of network systems products, which include switches, hubs, routers and network management software, were up a mere 9 percent from a year ago and that was "markedly improved.'' Sales of "personal connectivity products," which include network interface cards (NICs) and modems, were down 19 percent from a year-ago. And sales of handheld computing products (the Palm unit) were up 50 percent. The Palm unit now represents 13 percent of 3Com's sales. All of 3Com's growth is being spun off.

Christopher Paisley, chief financial officer, added some fuel to the revenue growth concerns by predicting the second quarter sales would be down from a year ago with sequential growth less than 10 percent. The same will occur in the third quarter from the second, Paisley said.

"If 3Com expects to be independent it has to show top line growth," said Craig Johnson an independent for the Pita Group. "Where's the growth strategy? I have yet to hear one."

3Com's chieftains highlighted new product offerings unveiled Tuesday and talked about a marketing campaign, but it was all a bit general. 3Com is refocusing itself on Internet access through the fast growing digital subscriber line, wireless and cable markets. But guess what? Those businesses will become commodities soon just like 3Com's current business.

3Com also said it will increase its focus on the small business networking market. Gee, so is everyone else. Cisco Systems Inc. (Nasdaq: CSCO) is taking market share from 3Com, according to several analysts. Intel Corp. (Nasdaq: INTC) is also making 3Com miserable.

Some investors will argue 3Com looks cheap compared to its networking peers and buy into the stock today. But 3Com may not be such a value right now. A company's stock only looks like a value if you believe the business will get better.