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3Com Still Struggling Despite Improved Sales

Despite its feverish efforts to regain the confidence of its investors, customers and partners, 3Com's latest financial numbers indicate that a turnaround is still far from complete.

Despite its feverish efforts to regain the confidence of its investors, customers and partners, 3Com's latest financial numbers indicate that a turnaround is still far from complete.

On Wednesday, the company reported financial results for the fourth quarter of fiscal year 2005 ended June 3, showing drastically widening losses compared with the same period last year. The company's revenue for the quarter was $177 million, gross profit was $62 million and operating expenses were $125 million, including $8 million in restructuring charges -- resulting from 3Com's acquisition earlier this year of security vendor TippingPoint -- and $4 million in amortization. This resulted in a net loss of $58 million, or 15 cents per share. 3Com lost $53 million (14 cents per share) in the third quarter of fiscal 2005 and $19 million (5 cents per share) for the fourth quarter of fiscal 2004. The news caused the company's stock price to fall about 4.5 percent in after-hours trading, to $3.62.

In a conference call with analysts and the media, Don Halsted, 3Com executive vice president and CFO, cited increased operating costs as the primary culprit for the ballooning losses.

"The sequential increase was primarily driven by the inclusion of a full quarter of TippingPoint expenses, the additional week in the fourth fiscal quarter and the further redirection of channel-program investment from rebate programs to demand-generation activities," he says. "Compared to the same period of fiscal 2004, these expenses increased $27 million, or 32 percent."

Bruce Claflin, 3Com president and CEO, tried to paint the numbers in a positive light. He noted that the company did achieve 10 percent sequential revenue growth and overall sequential revenue growth across all regions, highlighted by almost 30 percent growth in 3Com's Voice over IP product lines.

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