InformationWeek

December 8, 1997

Cabletron, 3Com Warn Of Lower Financial Results

Analysts say drops reflect company, not industry, problems

abletron Systems Inc. and 3Com Corp. both warned last week that their financial results for the quarter ended Nov. 30 will fall short of expectations. But analysts say the circumstances are specific,not a sign of trouble in the networking hardware industry.

3Com says sales in its fiscal second quarter will total $1.22 billion to $1.24 billion, compared with Wall Street estimates of $1.4 billion to $1.5 billion. CEO Eric Benhamou says 3Com decided to slow shipments to its channels to let built-up inventory clear. Sales were soft, he says, mostly because of turmoil in Asian markets and slower-than-expected migration to 56-Kbps modems.

Cabletron's stock lost more than one-third of its value after the company said third-quarter earnings will come in at only 8 cents to 16 cents a share, co mpared with the Wall Street consensus of 39 cents and year-earlier earnings of 44 cents (see story, " Nightmare At Cabletron ").

Analysts point to stiff competition for Cabletron and possible hitches in digesting the Digital unit. But customers are less pessimistic. James Wiedel, network manager for the University of Southern California in Los Angeles, oversees a network of 13,500 nodes that uses Cabletron hubs and switches. "The earnings news doesn't really affect us," Wiedel says. "The Digital acquisition came as a bit of a surprise, but it doesn't affect me. What does affect me are prices.Cabletron's not inexpensive. I'd like to see them drop their prices."

The news came a week before Cabletron will announce moves in the 10/100-Mbps Ethernet switching market, and a week after it announced plans to buy Digital Equipment's network hardware business.

This week, Cabletron will announce a new module for its SmartSwitch 6000 wiring-closet switch, doubling the port count to 16 and cutting the price per port. It will also rename its MMAC Plus LAN backbone hub the SmartSwitch 9000, and will ship a 10/100 module for that product which doubles the port count to 26 and cuts the per-port price.

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