3Com hammered on warnings, downgrades

2 min read
3Com (Nasdaq: COMS) shares dropped nearly 30 percent Tuesday after the company lowered its guidance for the second quarter and received a batch of downgrades from analysts.

After market close Monday, the network equipment maker warned that it will post a wider-than-expected loss in its second quarter. The company also told analysts not to expect an improvement in the third quarter.

Shares of the company were pummeled in after-hours trading yesterday and the slide continued Tuesday, with shares falling almost 30 percent, down 4 to 9.38. 3Com shares have collapsed since March, when the stock was trading at 119.75.

The company said it now expects to lose between 19 cents to 23 cents a share for the second quarter, much wider than the First Call Corp. consensus estimate of 8 cents a share. Revenue estimates were also lowered to between $785 million to $800 million, down from the company's previous guidance of between $870 million to $910 million.

According to the company's statement, 3Com's woes are based its slumping carrier business, which saw a steep decline both sequentially and year-over year. In addition to the telecom spending slowdown, CEO and president, Bruce Claflin, also noted that the widely-reported PC slowdown could affect 3Com's business in the third quarter.

Analyst reaction was swift as Goldman Sachs, Lehman Brothers and a host of others cut their ratings for the company. Analysts said 3Com's "lack of visibility" into future quarters prompted the downgrades.

Goldman Sachs downgraded the stock from "market outperform" to "market perform". Lehman Brothers also downgraded the stock from "outperform" to "neutral". The 2001 fiscal year loss estimate was also raised from a loss of 25 cents to 60 cents a share.

Gerard Klauer Mattison & Co downgraded 3Com to "outperform" from "buy", and also lowered earnings and price targets. Loss for the quarter is now estimated to be 21 cents from 11 cents, with the stock target price lowered to $14 from $25.

Morgan Stanley Dean Whitter was more forgiving, maintaining its "outperform" rating. Fiscal year 2001 loss, however, was widened from 15 cents to 76 cents per share, revenues were cut to $3.3 billion from $3.6 billion, and the stock's price target was lowered from $24 to $15.