3Com Swings To 3Q Profit On Higher Margins, China Sales

   DOW JONES NEWSWIRES 
 

3Com Corp. (COMS) swung to a fiscal third-quarter profit, its third consecutive after a string of losses, on improved margins as well as strong sales in China and in its network-security software unit.

Shares rose 4% to $2.85 as earnings topped Wall Street's expectations, though revenue was below estimates. Through Thursday's regular trading, the stock is up 20% this year.

Chief Executive Bob Mao said strength in 3Com's China business and TippingPoint unit, which makes network-security software, along with "stringent cost management" more than offset weakness in other regions.

3Com has been cutting costs as it focuses on revenue growth, improving margins and reducing debt. The company generated $100 million in cash from operations in the latest quarter, ending the period with cash and cash equivalents of $560 million.

For the quarter ended Feb. 27, 3Com reported net income of $1.9 million, or less than 1 cent a share, compared with a year-earlier net loss of $7.8 million, or 2 cents a share. Excluding charges and stock-compensation costs, earnings rose to 13 cents a share from 8 cents.

Revenue slid 3.5% to $324.7 million.

Analysts' average estimates were for per-share earnings of 10 cents on revenue of $332.3 million, according to a poll by Thomson Reuters.

Gross margin rose to 57.2% from 53.4%.

3Com competes against much larger rivals, such as Cisco Systems Inc. (CSCO), but it also sells antihacking and other network-security services to the U.S. Defense Department. That business line ultimately sank its proposed $2.2 billion buyout last year by private-equity firm Bain Capital Partners LLC and its Chinese partner, though two-thirds of 3Com's 6,000 employees work in Beijing.

-By Kathy Shwiff, Dow Jones Newswires; 201-938-5975; [e-mail]