3Com Gears Up for Cisco Challenge

Investors will be closely monitoring 3Com's ( COMS) fourth-quarter results Thursday for evidence that the firm is mounting a concerted challenge to networking giant Cisco ( CSCO).

The computer maker already sells its own networking products to small and medium businesses, as well as security offerings from its $430 million acquisition of Tipping Point.

However, with Cisco's recent decision to enter the server market, 3Com has been presented a gilt-edgedopportunity to boost its networking business. The Marlborough, Mass.-based firm has already earned a reputation for aggressive pricing, and is clearly looking to sell more of its gear in Cisco's back yard.

3Com, for example, recently announced plans to expand its Chinese H3C subsidiary into the rest of the world, a move that could have major ramifications for the company.

Initially set up as a joint venture with Chinese tech giant Huawei in 2003, 3Com took sole control of H3C in 2007. Timed to coincide with China's economic explosion, H3C brought in revenue of about $550 million during the first three quarters of 3Com's current fiscal year, which equals more than half of the firm's total sales.

H3C also helped the Marlborough, Mass.-based firm beat Wall Street's profit estimate in its recent third-quarter results, and investors will be keen to see whether this momentum continues ahead of a global roll-out.

The last couple of years have certainly been interesting for 3Com, thanks in no small part to its links to China. Last year an attempted takeover of the firm by Bain Capital and Huawei was thwarted by the Committee on Foreign Investment in the United States (CFIUS), reportedly amid national security concerns.

Nonetheless, the market has responded well to 3Com's story. The company's shares have risen steadily in 2009, almost doubling in value to reach their current level around $4.58.

Analyst firm Needham & Company recently initiated 3Com coverage with a Buy rating and a $7 price target, citing the firm's ability to grow in a tight IT spending environment.

Thomson Reuters expect 3Com to post earnings of 5 cents a share and sales of $294.78 million when it posts results before the market opens Thursday. In the same period last year, 3Com recorded sales of $321.3 million and a loss of 41 cents a share, thanks largely to a $158 million charge associated with its Tipping Point acquisition.

Other tech manufacturers are also likely to be following 3Com's progress. In addition to Cisco, 3Com faces a stiff challenge from Hewlett-Packard ( HPQ), which is aggressively pushing its own ProCurve products into the networking space.

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