3Com stocks drop following poor Q3

3Com shares plunged 27 per cent after the company revealed its third quarter earnings would be far lower than analysts anticipated.

The firm said sales of adaptor cards and low-end switchers were lower than expected over the past two months.

At the same time, 3Com announced price cuts on its Fast Ethernet adaptor cards, in a tit-for-tat price battle with Intel, which chopped up to 40 per cent off its Ethernet prices last week.

Analysts say Intel wants to grow its market share in the lucrative Fast Ethernet market and has spare manufacturing capacity it wants to use.

At present, market figures indicate that 3Com holds about 33 per cent market share, Intel around 20 per cent and Compaq 15 per cent. The rest of the market is shared among a multitude of vendors, with IBM holding a relatively small share.

Graham Stewart, product marketing manager of networking at Compaq UK, said: ?The reason for the price cuts is that this has been a lucrative market for some time. The number of networking PCs is increasing and there are also network-ready PCs.?

He said Compaq was increasing its market share. ?Our goal is to be number two in this market by the end of the year.?

Compaq will not respond to the price wars because its pricing for NICs was lowered in January. ?We believe our prices are still competitive,? he said.

The profit warning has exposed 3Com to an IBM takeover. Six months ago, the vendor said it was interested in buying, but a rise in 3Com?s fortunes forestalled its plans.