Somebody certainly sees something they like in struggling network equipment provider 3Com (NASDAQ:COMS). Near a 52-week high, the stock is up nearly 100% in a little over a year.

Indeed, there is beauty on the balance sheet: $1.3 billion in cash and no debt. That's about as clean as it gets. The company's performance over the last three-and-a-half years, though, has been nothing but bad, including net losses totaling $2.1 billion. Ouch!

The ugly: the company's options program. During the last six months, the company has issued 8.8 million options -- a whopping 2.3% of the outstanding shares. With a total of 73.5 million options currently in play, the potential dilution is at 19%.

3Com moves through fiscal year 2004 saying, "...we believe that we must further reduce total operating expenses over the next several quarters to be less than $100 million per quarter, as compared to $171.8 million for the most recent quarter, in order to achieve profitability." Clearly, after years of cost cutting, this particular ugliness will continue.

And management readily admits that 3Com's future is tied to its 49% minority interest in a joint venture with China's largest manufacturer of telecom equipment, Huawei Technologies. The venture's router and modular products target telecom giant Cisco (NASDAQ:CSCO) -- a 900-pound gorilla that appears to be taking Huawei seriously.

A strong partner to be sure, Huawei recently formed another joint venture with German electronic giant Siemens (NYSE:SI) to develop 3G wireless products. Huawei also sells next-generation network equipment in China with software giant Microsoft (NASDAQ:MSFT) and has agreements with Intel (NASDAQ:INTC), Infineon (NYSE:IFX), Qualcomm (NASDAQ:QCOM), and others.

Still, as strong as Huawei is, 3Com isn't cheap. Sales were up 14% in the most recent quarter, but the company is not projecting profitability for fiscal year 2004. And yet, the stock sells for four times revenue -- and that's before the options dilution. Clearly, investors see more good than bad and ugly in the years ahead.

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You can email Don Crotty at