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3Com exceeds expectations

But sales are down, so the jury's still out

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It was good news for 3COM yesterday: Q1 net income was up 32 percent sequentially in its Q1 results, and analysts' expectations had been exceeded. Other ways of looking at the figures are less attractive: the $1.41 billion sales were 12 percent off the year earlier figure, and only 2 percent up on the previous quarter. Net income for the period ending 28 August was $93.7 million, which is certainly better than the $51.2 million loss a year earlier. 3COM's shares went up in after-hours trading by 4 percent. But at around $33, they are still less than half last year's $77 high. The general mood of financial commentators is that 3COM (it used to stand for "computers, communications and compatibility" when Bob Metcalfe -- the inventor of Ethernet -- founded the company) is now positive. 3COM is about half the size of Cisco, its main rival, and has adopted a strategy of going around the edges of Cisco's turf, rather than having head-on confrontations. The practical outcome is that 3COM concentrates on the small-to-medium end of the market, while Cisco has an easier ride at the high end. After a difficult time with excess modem inventory after its acquisition of US Robotics last June, the Palm Pilot is seen to be a very successful acquisition, with sales expected to increase to around $600 million this year, compared to around $225 million last year. The latest rumour is that Intel would like to buy 3COM, but the regulatory obstacles are probably too great to make this a real possibility. ®

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