3Com High

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After the bell yesterday, 3Com (Nasdaq: COMS) reported a first-quarter loss of $106 million, or $0.29 per share. Revenues declined 40% to $162 million, beating the analyst estimate of $155 million. Are you encouraged, yet?

In fact, 3Com is in decent shape. The company has $1.48 billion in cash, which accounts for over 60% of its market cap. While the business burned through $44 million this quarter, and the company expects $50 million combined cash burn over the next two quarters, 3Com also expects to be cash flow breakeven by the fourth quarter of the fiscal year.

Last week, the company announced that it would outsource all of its manufacturing operations to Flextronics (Nasdaq: FLEX) and Jabil Circuit (NYSE: JBL). It will close its plant in Dublin, cutting loose about one-third of its 3,100 employees. This should improve efficiency and reduce costs in the long run.

And there's further room for optimism: The company expects to invest $160 million in a joint venture with Huawei Technoloiges, a Chinese company. The joint venture expects to ship routers beginning in October.

Management noted that desktop, mobile and server connectivity product sales would be relatively flat in Q2 due to seasonality, and would face 10% to 20% declines per quarter thereafter. However, the focus going forward is on the enterprise market.

If there is cause for concern it's that the company still has 84 million outstanding stock options -- representing 23% of outstanding shares -- resulting from its spin off of Palm (Nasdaq: PALM) about three years ago. However, management has taken steps to meet proxy advisory Institutional Shareholder Services' (ISS) guidelines on the matter.

Certainly, the no-B.S. reporting is encouraging. The results were reported in plain vanilla GAAP, without the pro forma cheese. And apparently, we're not the only ones impressed. Midday, shares of 3Com are up 7% to $6.42, a new 52-week high.