3Com Reports Second Quarter Fiscal 2000 Results; Sales of Handheld Computers Increase 50% Sequentially - Company Financial Information

Edge: Work-Group Computing Report, Dec 27, 1999

3Com Corporation Tuesday reported financial results for its second fiscal quarter ended November 26, 1999. Sales of $1.475 billion increased six percent sequentially and declined four percent from $1.541 billion reported in the same quarter a year-ago. Net income of $177.3 million ($0.51 per share) included a net gain of $71.3 million from the sales of investments, and a $5.9 million charge related to corporate realignment costs. These results compare to net income in the second quarter of fiscal 1999 of $132.9 million ($0.36 per share), which included a pre-tax charge of $0.6 million related to merger and real estate activities. Excluding the aforementioned items, pro forma net income in the second quarter of fiscal 2000 was $130.9 million ($0.37 per share) as compared to pro forma net income of $133.4 million ($0.36 per share) reported in the second quarter of fiscal 1999.

"We continue to make progress on all three key fiscal 2000 objectives: refining our strategy, transforming our growth profile, and streamlining operations," said Eric Benhamou, 3Com chairman and CEO. "Supply chain management continues to improve, our balance sheet has never been stronger, the Palm IPO is on track for early calendar 2000, and we are gaining momentum in several emerging high-growth markets including wireless CDMA, LAN telephony, and broadband cable and DSL modems."

For the second quarter, sales of Personal Connectivity products, which include network interface cards (NICs) and analog, cable and DSL modems, increased 15 percent sequentially to $620.9 million. Sales of Network Systems products, which include switches, hubs, remote access concentrators, routers and network management software, were $593.2 million, a decrease of 12 percent sequentially. Sales of handheld computing products increased 50 percent from the previous quarter to $260.9 million.

During the second quarter, 3Com announced plans to build two distinct companies by making its Palm Computing subsidiary an independent publicly traded company, and to refocus 3Com on its networking business. Demonstrating its renewed focus and commitment to this business, 3Com launched e-Networks, a comprehensive strategy for providing business enterprises with networks especially suited to support modern business applications. As part of this strategy, the company is strengthening our e-business competencies internally, as well as applying them to solutions for customers.

For example, 3Com recently announced the formation of a strategic global alliance with U.S. Web/CKS, a leader in Internet professional services. As part of the alliance, 3Com is investing over $100 million in U.S. Web/CKS to jointly develop, market and deliver Internet e-business solutions. In December, 3Com acquired Interactive Web Concept Inc. (IWC), a privately-held Internet business strategy consulting, creative design and software engineering firm. The acquisition strengthens 3Com's e-Networks strategy by increasing the company's competency in providing end-to-end e-business solutions for enterprise customers.

3Com has achieved several milestones in its goal to increase the company's growth rate by improving 3Com's position in five emerging high-growth markets: VoIP, LAN telephony, wireless access, broadband cable and DSL, and home networking.

In December, 3Com completed its acquisition of LANSource Technologies, Inc., a leading vendor of data- and fax-over-IP software applications. The acquisition targets the multibillion dollar worldwide IP fax and unified messaging services markets, and provides 3Com with technology and expertise to accelerate its development of fully integrated unified messaging solutions for the IP telephony market.

3Com's NBX 100 communications system received three top-industry honors from PC Magazine, Internet Telephony and Internet Telephony Expo Fall 1999. Internet Telephony deemed the NBX 100 communications system one of the "Products of the Year," and at Internet Telephony Expo in October, NBX100 won the "Best of Show" award. These awards demonstrate that industry experts who closely follow Voice over Internet Protocol (VoIP) rank the NBX 100 communications system as one of the hottest products on the market.

3Com formed a strategic alliance with Concentric Network Corporation, a leading provider of e-business solutions, to deliver bundled Digital Subscriber Line (DSL) solutions to U.S. small and medium sized businesses (SMBs). The alliance creates a bundled service sold through 3Com's extensive channel of more than 45,000 resellers focusing on selling services and solutions to the SMB U.S. market.

3Com also forged a groundbreaking partnership with Bell Atlantic that -- for the first time -- provides consumers with convenient, one-stop shopping for high speed Digital Subscriber Line service. As a result of this alliance, consumers will be able to walk into select retail outlets, buy a DSL kit -- including a 3Com HomeConnect ADSL modem -- and get all the information and software they need to use Bell Atlantic.net high-speed Internet access service.