3Com Feeling Cisco's Heat
The company has landed in Cisco Systems Inc.'s (Nasdaq: CSCO) sights now that its joint venture with Huawei Technologies Co. Ltd. is shipping product. Cisco has amped up its sales efforts against 3Com/Huawei, possibly contributing to a disappointing start for the joint venture and, in turn, to a disappointing earnings call from 3Com yesterday.
The Evil Eye from Cisco is no surprise, "given 3Com's association with Huawei and 3Com's effort to move into Cisco's space," says analyst Erik Suppiger of Pacific Growth Equities Inc. In a note published today, Suppiger ties Cisco's stance to 3Com's earnings: "[We] believe at least one of the external reasons for [3Com]’s earnings inconsistencies is the aggressive competitive strategy that Cisco has employed."
On yesterday's earnings call, 3Com officials acknowledged that competition has gotten rough. "What I've been hearing from the field is on any big deals where we're going up against Cisco, they're determined to not lose, so they're being aggressive," said 3Com chief financial officer Mark Slaven.
For its third quarter, which ended Feb. 27, 3Com reported revenues of $172 million, falling short of Suppiger's estimate of $176 million. Losses on the quarter were $86 million, or 22 cents per share (see 3Com Reports Fiscal Q3). 3Com stock was down $0.37 (5.24%) to $6.69, in trading late today.
Huawei, meanwhile, is sailing smoothly, reporting record annual revenues exceeding $3 billion (see Huawei Reports Record Revenues). Then again, with numbers like that, Huawei doesn't have as much pressure on it as 3Com does.
It's widely believed that Cisco has it in for Huawei, a rivalry that manifested itself in a lawsuit, currently suspended, that claimed Huawei copied Cisco code (see Cisco/Huawei Lawsuit on Hold). Cisco officials declined to comment on 3Com's remarks or on competition with Huawei.
Whether competition from Cisco is the cause or not, the 3Com/Huawei joint venture, which began shipping products in October, is off to a slow start. For the quarter ended December 31, the venture collected revenues of $15 million and showed a net loss of $8 million, 3Com officials said. About $5.5 million of those revenues went to 3Com, up only slightly from $5 million last quarter.
— Craig Matsumoto, Senior Editor, Light Reading