3Com Gains as Q2 Results Top Estimates

3Com (Nasdaq: COMS) Corp. (Nasdaq: COMS) was up 19/32 at 7 25/32 early Friday after the company announced better-than-expected results for the second fiscal quarter and said it plans to operate its carrier networks business as a separate subsidiary.

The Santa Clara, California-based maker of networking equipment said revenue for the quarter totaled US$789.5 million, including $22.8 million from businesses that are being sold. Sales from ongoing businesses dropped 5 percent from the prior quarter, due to a slowdown in demand as several larger telecom customers announced reorganizations and smaller ones ran into financing problems, 3Com said.

The loss before extraordinary items totaled $52.4 million, or 15 cents per share, compared with a loss of $41.3 million, or 12 cents, in the prior quarter. Analysts had expected a 20 cent loss.

"The significant slowdown in the telecom industry adversely impacted 3Com during the quarter," said president and chief operating officer Bruce Claflin. "However, we remain bullish on the potential of the telecom industry and, in particular, the prospects for our carrier networking business."

3Com said it will spin off the carrier network business into a separate subsidiary, CommWorks Corp. The company named Irfan Ali, general manager of the business, as president of the new subsidiary.

"CommWorks will have the freedom and resources necessary for success in the carrier marketplace, while leveraging the financial and technical strengths of 3Com Corp.," Claflin said.

The carrier networks business builds Internet protocol (IP) networks for network service providers.

3Com said it will take a charge of between $40 million and $60 million in the third quarter ending March 2, 2001 to cover the restructuring. The change, however, should save between $200 million and $250 million per year, helping the company reach operating profitability in the first quarter of fiscal 2002, 3Com said.

"3Com intends to have two growth businesses, each of which generates superior financial returns," said Claflin. "We are committed to obtaining the benefits of focus, while investing in leadership products and services which drive profitable growth. All these actions are intended to create increased shareholder value."