3Com's shares plummeted on Wednesday after it issued a profit warning for its third quarter, which ends in February.
It attributed the shortfall to a slowdown in customer expenditure due to the Year 2000 problem and increased competition from rivals, but saw its stock price fall $4.6875 to close at $48.4375 as a result.
Christopher Paisley, 3Com's chief financial officer, who plans to retire next summer, told analysts late on Tuesday that he expected the company's revenue and earnings, excluding one off gains, charges and acquisition expenses, to be comparable to the previous year's.
Last year, the company turned in earnings per share of $0.24, but the analysts' consensus estimate had predicted third quarter earnings of $0.32.
The news came as 3Com turned in better than expected second quarter figures due to its cost cutting efforts and attempts to streamline operations.
Net income rose to $177.3 million or $0.51 per share, after a $71.3 million investment gain and a $5.9 million restructuring charge. This compared with profit of $132.9 million or $0.36 per share in the year ago period. The First Call analyst estimate had put earnings at $0.34 per share.
If the extraordinary items were included, however, 3Com would have expected to post profit of $130.9 million or $0.37 per share.
The firm's revenue, however, fell 4.3 per cent to $1.47 billion, although if the Palm Computing division, which 3Com intends to spin off next year, is excluded, the drop was more like 13 per cent.
This was attributed to delays in product introductions and slight delays in customer purchasing due to the millennium bug.
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