3Com Hit By Slow V.90 Transition

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June 25, 1998 (12:00 AM EDT)

By Shawn Willett,

3Com officials blamed a slow transition to new V.90 56-kilobit-per-second technology as a prime reason the company failed to show revenue growth in the quarter.

On the flip side, officials told analysts on a conference call Wednesday its inventory woes were essentially solved, and certain products -- remote access, for example -- were growing at a rapid rate.

For its fourth quarter, ended May 31, revenue was essentially flat at $1.37 billion. Enterprise products actually grew by 8 percent year over year, but client-access products, which include adapter cards and modems, decreased in revenue by 6 percent. About 51 percent of 3Com's business is from client-access products.

"The V.90 transition has occurred more slowly than originally planned," said CEO Eric Benhamou. "It is occurring, but not at an exponential rate. ... We think we will see an acceleration before the end of the year," he added.

V.90 is a unified standard for 56K modems, finalized earlier this year, that paves the way for consumer and corporate acceptance of 56K technology.

Other 3Com officials said the slow adoption of V.90 by ISPs was a factor in the slow acceptance by consumers.

"We expect the growth of the modem market depends on the pace of transition how fast service providers and carriers upgrade their infrastructure. To date, that transition has not occurred as rapidly as we would have had expected," said Chris Paisley, 3Com's chief financial officer.

Benhamou said he expects 80 percent to 90 percent of ISPs and carriers to have upgraded to V.90 by this fall.

On the bright side, Benhamou said the Santa Clara, Calif., company has its channel inventory problems under control and costs have been reduced. The company closed one manufacturing facility in Chicago and reduced its headcount by 6 percent.

On the subject of merger mania gripping the networking hardware space, Benhamou said 3Com will continue to partner with companies such as Siemens Nixdorf and Newbridge Networks to gain a stronghold in the voice- and data-convergence space.