3Com beat analysts' predictions by a penny in its fourth-quarterails to halt stock downgrade. results, but saw shares plunge after warning that revenue was likely to fall in the next quarter.
Shares dropped 14 per cent to $27.1 on Nasdaq, following the release of the profit warning and, as a result, many analysts downgraded 3Com stock from a buy to a hold.
Christopher Paisley, chief financial officer at 3Com, admitted: 'The summer and winter quarters will be challenging and revenue may decline in both. But the second and fourth quarters are typically growth times, and we expect that to be the case.'
3Com's fourth-quarter revenue increased by a modest 2.8 per cent to $1.42 billion for the quarter ended 28 May, compared with $1.38 billion last year. However, net income jumped 37.6 per cent to $87.5 million, compared with $63.6 million last year. Earnings per share were $0.24.
Sales for the year increased from $5.4 billion in 1998 to $5.8 billion.
Profit was up from $30.2 million last year to $403.9 million.
Strong sales of the handheld Palm devices helped boost revenue, but was counteracted by declining sales of 3Com's older products, such as modems and network interface cards (NICs).
The vendor also revealed that it is to buy back-up to 15 million of its shares, which represents about four per cent of the outstanding total.
Alongside the Palm division, Eric Benhamou, chairman and chief executive of 3Com, attributed the strong quarter to the 'rapid growth' of other businesses such as IP telephony and broadband access.
He added: 'With the completion of our SAP ERP launch and focus on balance sheet performance, we are strengthening our operations.'
But Benhamou did warn that this strengthening was unlikely to result in double-figure revenue growth next year.
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