3Com warns on profits

3Com spun off Palm earlier this year

Networking equipment maker 3Com has seen over a fifth of its value wiped away, with its share price falling 21.92% to $7.125 in morning trade on the New York Stock Exchange.

The sell-off, which also fuelled wider technology stock gloom, was triggered by a profit warning.

The company pre-announced a third quarter miss that was far wider than we had imagined possible

Seth Weber
Merrill Lynch

The company warned that it could lose almost three times as much money in its upcoming third quarter as it previously forecast.

The firm blames the slowdown in the telecommunications market, as well as the wider economic slowdown of the US, for its rising losses.

The company now estimates that it will be forced to report up to $245m in operating losses, compared to previous estimates of between $80m and $100m.

Downgrade

"The sudden and substantial slowing of the U.S. economy dramatically impacted the company's revenue and gross margin performance during the quarter," said Bruce Claflin, president of 3Com.

The sudden and substantial slowing of the U.S. economy dramatically impacted the company's revenue

Bruce Claflin
president of 3Com

The company also suffered a further blow when it was downgraded to a neutral rating by Merrill Lynch.

"The company pre-announced a third quarter miss that was far wider than we had imagined possible," said Merrill Lynch analyst Seth Weber.

The plummeting share price comes even though the company announced a cost-cutting restructuring programme earlier in the week.

Job losses

"3Com is committed to achieving a lower cost structure based on the realities of the current economic climate, while continuing to invest for long-term, profitable growth," said Mr Claflin.

On February 26, 3Com announced the first step of its cost-cutting strategy, with an across-the-board reduction of approximately 1,200 people.

It is not the first time that the firm has downgraded its expectations - 3Com was also forced to issue a profit warning the previous quarter.

It spun off its Palm handheld computer unit in June last year, and the company now focuses on home-networking, high-speed modems and wireless and internet telephony, and networking for small-and medium businesses.