US Robotics? penchant for high inventory levels will put a severe dent in the profitability of its parent 3Com.
3Com, which acquired USR for $6.6 billion, warned that flushing out $600 million-worth excess stock will reduce expected earnings of 44 cents a share to zero in Q3. Revenue will also be down to about $1.2 billion - $400 million below what analysts expected.
The news pushed 3Com?s share price down to just over $35. This time last year it was priced at over $80.
Industry analysts said USR?s high level of inventory was mostly to blame. Modem prices have fallen faster than modem technology has advanced. When 3Com bought USR last February, a 33.6Kbaud fax modem carried a retail price of #150; now it would sell for about #40. Under the new regime, 3Com resellers will hold between six and eight weeks inventory, compared to up to 12 weeks currently. ends
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