3Com Reports Wider 3Q Loss, Plans New Channel Program For Global Partners

For the quarter ended Feb. 27, the Marlborough, Mass.-based networking vendor reported a loss of $85.6 million, or 22 cents per share, compared with a loss of $79.2 million, or 22 cents per share, the same quarter a year ago. The quarter included approximately $40 million in restructuring charges.

Revenue for the quarter dropped to $171.8 million, down from $216.5 million in the same quarter last year. Financial analysts expected the company to report revenue of $176 million, according to Thomson Financial/First Call.

Despite the disappointing numbers, 3Com President and CEO Bruce Claflin said he is seeing improvements in the economic picture for the industry.

"The good news is budgets are stable, CIOs are able to predict with some accuracy what their spend levels will be, and they are getting a little more adventurous in terms of looking for more strategic projects," Claflin said during a conference call. "Having said that, I would characterize it as growing modestly," he said, noting that he expected a more robust recovery by this point.

Areas of the industry showing signs of higher growth include wireless, security and IP telephony, all segments in which 3Com competes, Claflin said. 3Com's third-quarter revenue from products in those areas in aggregate grew more than 10 percent sequentially, he said.

Claflin also revealed 3Com's plan to roll out a new channel partner program called Vision Partners in the fourth quarter aimed at a small number of global systems integrators and service providers.

In December the company revived its channel partnership with EDS, a relationship that dissolved after 3Com exited the enterprise market in 2000.

3Com's third-quarter results also recorded a $4 million loss from its joint venture with Chinese networking vendor Huawei Technologies for the period beginning Nov. 17 and ending Dec. 31, 2003. 3Com's revenue from the joint venture rose slightly less than 10 percent from about $5 million in the previous quarter.

Through the Huawei partnership, 3Com is rebuilding its high-end networking portfolio as a means of re-entering the enterprise market.

During the quarter, 3Com shed about 800 employees, ending with a full-time staff of 2,100. The company previously said it would reduce head count as it outsourced manufacturing from its Dublin, Ireland, plant to Singapore-based Flextronics and Jabil Circuit, St. Petersburg, Fla. That transition was completed during the quarter.

3Com expects revenue for the fourth quarter to be flat to slightly up sequentially.

Shares of 3Com closed down 3 cents at $7.06 prior to the announcement.