December 20, 1996 11:00 AM ET
3Com on a roll
By Margaret Kane

  Boost your earnings 71 percent and the market loves you.

3Com Corp., which late yesterday also reported a 46 percent gain in sales for its second fiscal quarter, saw its stock jump up $3 to $79.75 in early morning trading today, pleasing Wall Street analysts who follow the Santa Clara, Calif., networking products company.

"Obviously it's very positive. I've raised my [earnings] estimates as well as price target," said Randy Yuen, vice president at Oppenheimer & Co. in New York. "One reason is the [price-to-earnings ratio] will be increasing because of acceleration in its growth rate, increasing growth in margins and ending the perception of 3Com as a low-end player."

The company earned $105.6 million for the quarter, including a $6.6 million charge for buying OnStream Networks Inc. Without the charge, 3Com's earnings were 60 cents per share, compared to 37 cents a share in the same quarter a year ago. Sales were $820.3 million, compared with $561.8 million last year.

Sales of systems products, including switches and hubs, were up 41 percent to $460.7 million for the quarter, while sales of network adapters were up 55 percent to $353.2 million.

Yuen was surprised by the strength in the adapter business.

"Adapter parts is a business that everyone is usually low-key about," he said. "And it's growing faster than their systems business, which is quite remarkable."

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