3Com inventory causes Q2 slump

Networking giant 3Com has blamed the downturn in its Q2 results on problems with its high stock levels, after reporting that sales are only expected to break even.

According to Wall Street expectations, 3Com predicted that sales would be between $1.22 billion and $1.24 billion, which is $400 million less than it had anticipated. This will result in a slight profit for Q2 ended 30 November. The Q2 figures are expected to show a flushing out of $600 million of excess stock.

Bob Cushing, European marketing director at 3Com, said at the end of Q1 that the vendor was still implementing an inventory control process to reduce the amount of stock distributors were holding at any given time.

'We are trying to cut down on stock at the distribution level without giving rise to a stock-out situation,' said Cushing.

He also highlighted the recent currency crisis in Asia and the International Telecommunications Union delays over the ratification of a modem standard as additional factors affecting the results, which are due for release on 18 December.

Cushing said: '3Com does significant business in Asia and it was one of the fastest growing markets.'

The vendor has also named accounting adjustments made during the course of closing the quarter and gathering actual financial data from various units worldwide as factors affecting its Q2 figures.

According to industry analysts, US Robotics, which 3Com acquired in March for $6.6 billion, had a history of high levels of modem inventories which may have contributed to the results.

Dealers have previously held inventory for up to 12 weeks prior to the rejig, however, this will be reduced to between six and eight weeks under the upgraded system.