3Com Still Has a Long Way to Go

3Com (Nasdaq: COMS  ) is off to a great start in its new fiscal year. But is it good enough?

Last year, the voice and data networking specialist lost $0.05 per share on $319 million in sales. This time, it's a $0.20 profit per share instead, on 7% higher revenue of $343 million, for the first quarter.

CEO Bob Mao said that his three main goals were year-over-year revenue growth (check), fatter profit margins (check), and "strong cash generation" ($39 million operating cash flow versus negative $59 million -- another check). Investors appreciated the difference and sent 3Com shares on a quick 4% rocket ride skyward after the news.

Mind you, all is still not well in Marlborough, Mass. 3Com is a paltry two-star stock in Motley Fool CAPS, in a cutthroat sector that includes dueling giants like Juniper Networks (Nasdaq: JNPR  ) and Cisco Systems (Nasdaq: CSCO  ) . Its share price is half of what it was in January, and 3Com has been living in penny-stock land since the tech bubble popped back in 2001. This is the turnaround story that never ends.

If 3Com can present reliable GAAP profitability from now on, this would be a good time to join the bandwagon. But is "price-performance leadership to value-conscious enterprise customers" good enough to make this dream a reality? One profitable quarter does not make a turnaround, and the last GAAP profit report happened years ago.

And that will take a better customer list. Cisco can boast of large customers like Monsanto (NYSE: MON  ) and AT&T (NYSE: T  ) , while 3Com has to settle for lesser lights such as Bank of China, Ingram Micro (NYSE: IM  ) , and Zones (Nasdaq: ZONS  ) . You're forgiven if you don't recognize one or two of those names, but it's the cream of 3Com's crop. Good luck, guys -- let's see what Mr. Mao can do.

Further Foolishness:

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure demands sustained excellence from everybody.


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  • Report this Comment On September 23, 2008, at 10:40 PM, usurfit wrote:

    3Com shiped more Routers and switches than Cisco in Asia last quarter and definitely more than Juniper worldwide.

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