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3Com Reports Loss as Sales Plunge 41%

June 26, 2003|From Bloomberg News

3Com Corp., the world's No. 3 maker of computer-networking equipment, reported a fiscal fourth-quarter loss Wednesday and said that falling demand was behind a 41% slide in revenue.

The company said it sees no sign of improvement in the current quarter.

The loss from continuing operations was $98.2 million, or 27 cents a share, contrasted with a profit of $4.68 million, or 1 cent, a year earlier.

Sales at the Santa Clara, Calif.-based company fell to $175 million.

3Com has had 17 straight quarterly sales declines as demand for its switches and routers slumps and competition from larger rivals such as Cisco Systems Inc. increases. Chief Executive Bruce Claflin said Wednesday that he will undercut competitors' prices by at least 25% to spur demand. 3Com also will add salespeople to work with larger customers to help encourage them to spend.

"It's been tough for these guys," said Wes Cummins, an analyst at B. Riley & Co., who rates 3Com "buy" and doesn't own the shares. "3Com is doing everything it can to compete."

Claflin, who has cut 3Com's workforce from more than 10,000 three years ago to about 3,400 at the end of the quarter ended May 30, said last month that revenue in the period would miss analysts' estimates because of weakness abroad and pressure from competitors trying to lure 3Com's small-business clients.

"We saw competitors increase the use of extended warranty terms, free software upgrades and expanded promotional activities," Claflin said on a conference call. "We are changing our pricing approach, moving more to a lower list price while also reducing the use of one-time promotions."

3Com's gross margin percentage, or the percentage of revenue left after subtracting the cost of goods sold from sales, fell to 36% from 41% a year earlier.

Operating expenses rose to $170.8 million, including restructuring charges of $56 million from costs to cut jobs and write down the value of plants, from $131.7 million a year earlier. The company plans to move its headquarters to Marlborough, Mass., in August.

3Com shares fell 1 cent to $4.80 on Nasdaq.

In other California earnings news Wednesday, WD-40 Co., a San Diego-based lubricants maker, reported that its fiscal third-quarter profit rose 11.5%, to $5.8 million , or 35 cents a share. Sales rose 6.9%, to $55.1 million.

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