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3Com to Cut 10% of Jobs Amid Weak Demand

The move comes as the company prepares to launch its joint venture with a Chinese telecom equipment maker.

June 13, 2003|From Reuters

SAN FRANCISCO — Network equipment maker 3Com Corp. said Thursday that it would cut 10% of its workforce, about 390 jobs, over the next six months to reduce costs amid weak demand for its products.

3Com said the decision would affect mostly employees in the United States and Europe. Within the United States, the deepest cuts will be in the company's Santa Clara, Calif., headquarters.

3Com employed 3,900 people at the end of its fiscal third quarter, which ended in February.

Shares rose 5 cents to $5.01 on Nasdaq.

"Continued weakness in demand requires we improve the company's overall cost structure," President and Chief Executive Bruce Claflin said.

The company will continue to selectively hire for areas that contribute to services for large corporate customers, he said.

3Com, which competes with technology heavyweights Cisco Systems Inc. and Dell Computer Corp., warned last month its fourth-quarter sales would be lower than expected because of stiff competition and weak international markets.

3Com said it expected sales of $165 million to $175 million, excluding revenue from its Commworks unit, compared with third-quarter revenue of $245 million.

"It's a response to the shortfall," Erik Suppiger, an analyst with Pacific Growth Equities, said of the job cuts. "Very clearly their costs are out of line in light of the reduced revenues."

"We think they have to make additional reductions," he added. "We think they're in a challenging position waiting for the joint venture with Huawei, and we think competition with Cisco is intensifying."

The job cuts will help 3Com rein in costs as it prepares to launch its joint venture with Chinese telecommunications equipment maker Huawei Technologies Co. to make networking gear for enterprise, or large corporate, customers, said analyst Wes Cummins of B. Riley & Co.

"They're not cutting sales and marketing right in front of the joint venture coming on line," Cummins said. "To me this isn't anything new. It's not new news their business is suffering.... It's nice to see them try to right-size their cost structure."

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