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3Com beats expectations

Despite the steady downturn of the company's stock, it wraps up an eventful fiscal year by posting earnings that slightly beat estimates.

3Com wrapped up an eventful fiscal year with earnings that slightly beat analysts' estimates.

Excluding one-time charges and credits, the networking company posted net income of $65.9 million, or 18 cents a share, compared with a net of $41.8 million or 13 cents a share for the same period a year ago.

Analysts had pegged 3Com's earnings for the quarter at 17 cents a share, according to First Call.

Including an $8.4 million charge related to the acquisition of Lanworks Technologies and a $4.9 million credit for a past merger, earnings came in at $63.6 million, or 17 cents a share.

Revenues for the quarter were $1.375 billion, compared with sales of $1,371 billion reported for the same period last year.

"We have clearly turned the corner," said a confident Eric Benhamou, chairman and CEO of 3Com.

3Com's stock has been on a steady downturn, with Wall Street concerned about continuing inventory issues and declining margins within the firm. Recent ratings adjustments reflect the financial community's wary view of 3Com.

Benhamou attempted to allay the fears of investors with news that a revamped inventory policy has shortened the period during which products remain in the company's hands.

"You can now assume this operational issue has been nailed," he said, adding that growth in high-speed switching, gigabit Ethernet technology, new home networking alternatives such as cable and digital subscriber line (DSL), and the continued success of the PalmPilot will serve 3Com well going forward.

However, executives issued a cautionary note for the coming quarter, calling 3Com's first fiscal 1999 period "a challenge" given that it falls during slower summer months.

3Com's sales for the year came in at $5.4 billion, compared with $5.6 billion reported for the 1997 fiscal year.

The company achieved a 22 percent sequential quarterly increase in sales of networking equipment such as switches, hubs, remote access concentrators, and network management software, with revenues for those products totaling $671.3 million. The figure represents an 8 percent jump over the same period a year ago.

Client access product sales increased 1 percent sequentially, to $704.2 million, but decreased 6 percent from the same period a year ago.

Benhamou confirmed reports that 3Com has initiated a search for a chief operating officer to take over the company's day-to-day operations so that he can address larger strategic issues and visit with more customers. The search started in the spring and is expected to take six to nine months, he said.

"We're very encouraged by the quality of the candidates," Benhamou said.

He noted also that the company's acquisition of US Robotics is now essentially complete, allowing the combined entity to move forward in a unified manner amid reports that the marriage of the two giants has endured some rough patches.

"All of this is behind us. The merger was probably made more difficult because the external environment was made more hostile," Benhamou said, referring to the variety of factors that led to a downturn in the fortunes of several networking players during this past year.