3Com to shed modems, speed spinoff of Palm

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Computer-networking equipment maker 3Com Corp. has announced plans to focus on its fastest-growing businesses. This will involve the sale of the dial-up modem business and result in thousands of job cuts.

3Com plans to form a new company with Taiwan's Accton Technology Corp. and Singapore's NatSteel Electronics Ltd. that will absorb the modem business.

California-based 3Com recently spun off part of its Palm Computing Inc. unit in a blockbuster initial public offering. 3Com said it will complete the distribution of its Palm stake to 3Com shareholders by 1 September, three months ahead of schedule.

The company has been trying to streamline operations and control costs in a bid to turn around its core computer-networking business, which has struggled since it acquired Palm and US Robotics in 1997. The efforts to integrate US Robotics caused 3Com to fall further behind industry leader Cisco Systems Inc.

Analysts had been looking for proof that 3Com was on the right track as sales of networking gear for businesses, PC modems and connector cards continue to shrink. To that end, 3Com said it will concentrate all its resources on three networking markets: consumers, commercial customers, and network service providers.

“We're focusing on markets where we have established leadership, while investing in new technologies and partnering with companies that strengthen our offerings,” said Eric Benhamou, 3Com's chairman and chief executive officer.

Earlier this month Benhamou said that the company has an exciting future built around new products such as high-speed modems, home networking and gear for wireless-phone networks. He hopes to use proceeds from the Palm sale to bolster 3Com through investments and acquisitions.

3Com’s reported fiscal third-quarter net income came to $506.3 million, or $1.40 a share, compared with $89.7 million, or 24 cents a share, in the same period last year. Revenue increased slightly to $1.415 billion from $1.411 billion.

The latest results included $654.9 million in investment gains, largely from the Palm IPO. Excluding the gains and acquisition-related expenses, the company said it would have posted earnings of $97.4 million, or 27 cents a share, for the quarter ended 25 February.

The results were roughly in line with a warning 3Com issued in December, in which they blamed a slowdown in technology spending by companies ahead of the year 2000 rollover and increased competition from rivals.

Third-quarter sales of personal connectivity products – network interface cards, analogue and broadband modems and home networking systems – fell 15 per cent to $551.9 million.

Sales of network systems products, which include switches, hubs, LAN telephony, and multiservice platforms, fell seven per cent to $591 million, but third-quarter sales of handheld computing products, such as Palm computer devices, more than doubled to $272.3 million.

The company also announced plans to acquire Call Technologies Inc., a developer of unified messaging software. Unified messaging allows users to access any message – voice, fax or e-mail – across a variety of networks through a variety of devices.

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