3Com Reports Fiscal Second Quarter Results; Sales of Commercial/Consumer Networking Products Up Sequentially; Slowdown in Telecom Spending Leads to Shortfall in Carrier Sales.Business Editors SANTA CLARA Santa Clara, city, Cuba Santa Clara (sän`tä klä`rä), city (1994 est. pop. 217,000), capital of Villa Clara prov., central Cuba. , Calif.--(BUSINESS WIRE)--Dec. 21, 2000 3Com Corporation (Nasdaq:COMS COMS 3Com Corporation (stock symbol) COMS Certified Orientation and Mobility Specialist COMS Continuous Opacity Monitoring Systems COMS City of Manchester Stadium (UK) ) today reported financial results for its second fiscal quarter ended December December: see month. 1, 2000. Total revenues for the quarter were $789.5 million, including $22.8 million for sales of exited businesses. Second quarter revenues from ongoing businesses were $766.7 million, representing a five percent decline from ongoing revenues of $806.3 million in the prior quarter. Pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma net loss, which excludes non-recurring items and amortization of goodwill and acquired intangibles, was $52.4 million or $0.15 per share, compared to a pro forma net loss of $41.3 million or $0.12 per share in the prior quarter. The company attributes the sequential decline of ongoing revenues primarily to the recent market slowdown For articles with similar titles, see Slow Down (disambiguation). A slowdown is an industrial action in which employees perform their duties but seek to reduce productivity or efficiency in their performance of these duties. in the telecom sector. During the quarter, several Tier 1 service providers announced reorganizations which 3Com believes created disruptions in their purchasing cycles. Also, financing constraints CONSTRAINTS - A language for solving constraints using value inference. ["CONSTRAINTS: A Language for Expressing Almost-Hierarchical Descriptions", G.J. Sussman et al, Artif Intell 14(1):1-39 (Aug 1980)]. and consolidation activities among several Tier 2 and Tier 3 service providers resulted in deferrals of equipment purchases. Accordingly, sales for 3Com's Carrier Networking Business in the second fiscal quarter declined 43% to $95.4 million compared to sales of $167.2 million in the first quarter of fiscal 2001. "The significant slowdown in the telecom industry adversely impacted 3Com during the quarter," said Bruce Bruce, Scottish royal family descended from an 11th-century Norman duke, Robert de Brus. He aided William I in his conquest of England (1066) and was given lands in England. Claflin, 3Com's president and chief operating officer Chief Operating Officer (COO) The officer of a firm responsible for day-to-day management, usually the president or an executive vice-president. . "However, we remain bullish Bullish Word used to describe an investor's attitude. Bullish refers to an optimistic outlook, while bearish means a pessimistic outlook. bullish on the potential of the telecom industry and, in particular, the prospects for our Carrier Networking Business." Second quarter sales for the Commercial and Consumer Networking Business were $671.3 million, up five percent compared to first quarter fiscal 2001 sales of $639.1 million. Although sales for the Commercial business were in-line In-line Used in the context of general equities. (1) An order or market in a specific security within the inside market; 2) any announcement (earnings) that adheres closely to Wall Street analysts' expectations. with the company's expectations, the Consumer business experienced softer than expected sales of broadband broadband Term describing the radiation from a source that produces a broad, continuous spectrum of frequencies (contrasted with a laser, which produces a single frequency or very narrow range of frequencies). customer premise equipment (CPE (Customer Premises Equipment) Communications equipment that resides on the customer's premises. CPE - Customer Premises Equipment ). The company attributes the softness in broadband CPE sales principally to deployment issues at several service providers, which adversely impacted sales of digital subscriber line See DSL. (communications, protocol) Digital Subscriber Line - (DSL, or Digital Subscriber Loop, xDSL - see below) A family of digital telecommunications protocols designed to allow high speed data communication over the existing copper telephone lines between end-users and modems, and to a lesser degree, cable modems cable modem Modem used to convert analog data signals to digital form and vise versa, for transmission or receipt over cable television lines, especially for connecting to the Internet. . "We are encouraged by the continued recovery of our overall Commercial/Consumer Business," said Claflin. "This quarter we launched several exciting products and solutions, entered into a strategic alliance with Broadcom Broadcom Corporation is an American supplier of integrated circuits (ICs) for broadband communications. Founded in 1991 by Henry Samueli (chairman and CTO) and Henry Nicholas, it became a public company in 1998 and now employs over 5,000 people worldwide. and initiated the acquisition of the Alteon WebSystems Alteon WebSystems Inc. NASDAQ: ATON, formerly known as Alteon Networks, "The Server Switching Company", was an Internet infrastructure company based in San Jose, California. Alteon was founded in 1996 by Mark Bryers, John Hayes, Ted Schroeder and Wayne Hathaway. Gigabit NIC (1) (Network Interface Card) See network adapter. See also InterNIC. (2) (New Internet Computer) An earlier Linux-based computer from The New Internet Computer Company (NICC), Palo Alto, CA. business, which was completed this month. These accomplishments will strengthen our market leadership position and contribute to our future growth." Gross margin for the quarter was $291.4 million or 37% of reported net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight which compares to $340.7 million or 36% of net sales for the fiscal first quarter. In absolute dollars, gross margins were lower due to the substantial decline in Carrier Networking sales. As a percentage of sales, gross margins improved due to reduced sales of lower margin products. Total operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. for the quarter were $432.3 million, down $54.0 million or 11 percent compared to total operating expenses of $486.3 million in Q1. On a pro forma basis, operating expenses were $403.2 million, down $36.5 million or eight percent compared to pro forma operating expenses of $439.7 million in the prior quarter. The decline in operating expenses from the first fiscal quarter is primarily attributable to cost containment cost containment, n the features of a dental benefits program or of the administration of the program designed to reduce or eliminate certain charges to the plan. efforts in selling, general and administrative activities. There were several non-recurring income and expense items during the quarter. The principal items included a gain on the sale of land and facilities of $176.0 million, a $250.0 million net charge related to the settlement of a shareholder lawsuit lawsuit: see procedure; tort. , an in-process research and development charge of $8.3 million related to the acquisition of Nomadic See nomadic computing. Technologies, and a $16.9 million net loss on investments. The second quarter pro forma operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. was $111.8 million compared to the pro forma operating loss of $99.0 million recorded in the first quarter of fiscal 2001. Basic and fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. shares outstanding for the second quarter were 345.7 million, down from 353.8 million in the prior quarter due to share repurchases Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. of approximately 10.4 million shares, partially offset by employee stock option exercises. The company's balance sheet remains strong with cash and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments of $2.4 billion as of December 1, 2000. The above statements pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to the future condition of the company, including the potential for growth in the Carrier Networking Business and in the Commercial/Consumer Business, the future outlook of the telecom industry, and the performance of products and solutions launched during the quarter, as well as the expected benefits from the Broadcom alliance and from acquisitions during the quarter, are forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. . As such, these statements are subject to the risks and uncertainties discussed in the company's Form 10-Q Form 10-Q See 10-Q. for the quarter ending September 1, 2000, Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the fiscal year ended June 2, 2000 and in the company's other SEC filings, and actual results may differ materially. Among the factors that could cause actual results to differ materially are the following: demand and growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. in the various markets that we serve, particularly the telecom, broadband, commercial networking and PC industries; competitive product introductions and pricing actions; acceptance of and demand for our Carrier and Commercial/Consumer Business products; the timing and availability of key components used in our products due to industry wide shortages; potential disruptions from the restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). in connection with CommWorks announced separately today; and overall economic conditions, particularly as they impact the telecom and enterprise networking The networking infrastructure in a large enterprise with multiple computer systems and networks of different types is extraordinarily complex. Due to the myriad of interfaces that are required, much of what goes on has little to do with the real data processing of the payroll and orders. industries. About 3Com Corporation 3Com simplifies how people connect to information and services through easy-to-use, connectivity products and solutions for consumers and commercial organizations. The company also provides access infrastructures and IP services platforms for network service providers. For further information, visit www.3com.com or the press site at www.3com.com/pressbox.
3Com Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
---------------------------------
December 1, September 1,
2000 2000
---------- ----------
Sales $ 789,498 $ 933,764
Cost of sales 498,101 593,036
---------- ----------
Gross margin 291,397 340,728
---------- ----------
Operating expenses:
Sales and marketing 218,115 236,315
Research and development 139,439 145,828
General and administrative 45,615 57,543
Amortization of goodwill
and acquired intangibles 11,252 7,493
Purchased in-process technology 8,258 29,406
Merger-related credits, net (113) (212)
Business realignment costs 9,695 9,901
---------- ----------
Total operating expenses 432,261 486,274
---------- ----------
Operating loss (140,864) (145,546)
Gain on sale of land
and facilities, net 176,038 --
Gain (loss) on
investments, net (16,938) 16,736
Litigation settlement (250,000) --
Interest and other income, net 41,889 45,630
---------- ----------
Loss from continuing
operations before income
taxes and equity interests (189,875) (83,180)
Income tax benefit (47,469) (20,795)
Equity interest in loss of
unconsolidated investee -- 1,352
---------- ----------
Net loss from
continuing operations (142,406) (63,737)
Net income from
discontinued operations -- 4,537
---------- ----------
Net loss $ (142,406) $ (59,200)
========= =========
Net income (loss) per share:
Basic:
Continuing operations $ (0.41) $ (0.18)
Discontinued operations -- 0.01
---------- ----------
$ (0.41) $ (0.17)
========= =========
Diluted:
Continuing operations $ (0.41) $ (0.18)
Discontinued operations -- 0.01
---------- ----------
$ (0.41) $ (0.17)
========= =========
Shares used in computing per
share amounts:
Basic 345,656 353,777
Diluted 345,656 353,777
3Com Corporation
Pro Forma Condensed Consolidated Statements of Operations
(Excludes amortization of goodwill and acquired intangibles,
purchased in-process technology, net merger-related credits,
business realignment costs, net gains or losses on investments,
net gains on sale of land and facilities, litigation settlement
and income from discontinued operations)
(In thousands, except per share data)
(Unaudited)
Three Months Ended
---------------------------------
December 1, September 1,
2000 2000
---------- ----------
Sales $ 789,498 $ 933,764
Cost of sales 498,101 593,036
---------- ----------
Gross margin 291,397 340,728
---------- ----------
Operating expenses:
Sales and marketing 218,115 236,315
Research and development 139,439 145,828
General and administrative 45,615 57,543
---------- ----------
Total operating expenses 403,169 439,686
---------- ----------
Pro forma operating loss (111,772) (98,958)
Interest and other income, net 41,889 45,630
---------- ----------
Loss from continuing
operations before income taxes
and equity interests (69,883) (53,328)
Income tax benefit (17,471) (13,332)
Equity interest in loss of
unconsolidated investee -- 1,352
---------- ----------
Pro forma net loss $ (52,412) $ (41,348)
========= =========
Pro forma net loss per share:
Basic: $ (0.15) $ (0.12)
Diluted: $ (0.15) $ (0.12)
Shares used in computing
per share amounts:
Basic 345,656 353,777
Diluted 345,656 353,777
3Com Corporation
Condensed Consolidated Balance Sheets
(In thousands)
December 1, June 2,
2000 2000
---------- ----------
(Unaudited)
ASSETS
Current assets:
Cash and equivalents $1,506,435 $1,700,420
Short-term investments 928,880 1,369,520
Accounts receivable, net 430,583 355,540
Inventories, net 217,505 234,812
Investments and other 580,932 655,772
Net assets of discontinued
operations -- 1,058,237
---------- ----------
Total current assets 3,664,335 5,374,301
Property and equipment, net 693,713 756,954
Goodwill, intangibles, deposits
and other assets 361,807 361,699
---------- ----------
Total assets $4,719,855 $6,492,954
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 408,471 $ 319,739
Other current liabilities 561,364 862,737
---------- ----------
Total current liabilities 969,835 1,182,476
Long-term debt 2,595 14,740
Deferred income taxes 72,840 71,336
Other long-term obligations 8,056 7,377
Equity interest in consolidated
entity -- 1,173,961
Stockholders' equity 3,666,529 4,043,064
---------- ----------
Total liabilities and
stockholders' equity $4,719,855 $6,492,954
========== ==========
Please Note: The financial statements contained in this release are
available with additional historic comparisons on 3Com's website at
www.3com.com/investor
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