3Com Corp is warning that steps it took in the second quarter to reduce inventory in its distribution channels worldwide will result in only a a slight profit for the quarter. Wall Street had been expecting the networking giant to report earning per share of around $0.44 for the quarter which ended November 30. According to the company second quarter sales will be between $1.22bn and $1.24bn compared to revenues in the first quarter of $1.6bn and second quarter sales last year of $820.3m – before the acquisition of US Robotic Inc. 3Com says that it has yet to completed the restructuring to reduce global channel inventories from three to five weeks, depending on product categories. It says that the new business model necessitates planning for further inventory reductions in the company’s modem and systems businesses during the third fiscal quarter.
According to 3Com, it had not expected the transition to impact its earnings, which also suffered from poorer than expected sales in the Asia Pacific market and slower than expected sales of its x2 56Kbps modems during the quarter. Complete second quarter results will be reported on or about December 18. The bulk of the inventory reduction were made in the companies recently acquired USR unit, which the company says was partly a move to bring the unit into line with the rest of 3Com. From now on the company says that its channel inventory measured in weeks of supply will be cut across the board. NICs will be supplied in a maximum of six weeks instead of 10, Modems cut from 12 to eight, and Systems from 12 to 7 weeks. According to the company, new systems used at the company enable it to more closely monitor inventory levels. These processes, which will provide detailed analyses of 3Com sales to channels and channel sales to end users at the company’s top 60-70 global partners will be implemented worldwide over the next several quarters.
