3Com Posts Strong Quarter, Unveils Modem - InformationWeek

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3Com Posts Strong Quarter, Unveils Modem

3Com Corp. yesterday reported a 38% increase in net income for its fiscal fourth quarter ended May 28, as the company's business shifted away from low-margin sales of modems and network interface cards.

The company reported fourth-quarter net income of $87.5 million, or 24 cents per share, compared with $63.57 million, or 17 cents per share, in last year's fourth quarter.

3Com's revenue rose 3% during the quarter to $1.42 billion, from $1.38 billion in the same period last year. While the company's sales of switches, hubs, routers, and network-management software rose 17% from the year-ago quarter, its sales of modems and network interface cards plunged 10%.

The shift in 3Com's sales mix was bad for revenue growth, but it caused the company's gross margins to improve to 46.9% of sales in the quarter from 43.5% of sales in the same period last year. Sales of modems and network interface cards, which generally carry lower profit margins than 3Com's routers, switches, and hubs, accounted for 45% of the company's sales in the fourth quarter, down from 51% in the same period last year.

For the full year, 3Com's sales rose 7.4% to $5.8 billion, from $5.4 billion in fiscal 1998. Net income was $403.9 million, or $1.09 per share, compared with $30.2 million, or 8 cents per share, in fiscal 1998. The company's fiscal 1998 results included a net charge of $253.7 million, primarily related to its merger with modem maker U.S. Robotics.

Separately, 3Com yesterday said it plans to release next month its Megahertz 56K Global modem, which connects to cellular networks such as the Global System for Mobile Communications system.

The modem includes country-selection software that simplifies remotely connecting to business networks and the Internet from overseas. The unit supports Windows 95, 98, 2000, and NT 4.0, as well as Mac OS, Linux, and DOS. It's expected to be priced at $229.

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