3Com's Shares Hammered After Huawei JV Buyout

Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:

3Com Shares Down on Huawei Deal [Business Week]

Summary: Shares of 3Com were sent tumbling more than 10% yesterday after the firm announced it was buying out the 49% stake of Huawei Tech. in their 3Com-Huawei joint-venture. Most analysts had a negative reaction accompanied with at least two downgrades, which created tremendous selling pressure with volume exceeding 60m (compared to a 3-month avg. of about 8m). 3Com will spend $882m, and as an RBC analyst put it, it will only have $32m in cash leftover, "an uncomfortable amount considering that 3Com is operating in a net loss." Analysts at Bear Stearns and Lehman questioned the ability to retain key employees and voiced concern over integration and execution. A Morgan Stanley analyst however, actually welcomed the deal but said, "... we think it is important that 3Com continue to have the rights to use the Huawei brand name in Asia, an issue that remains unresolved ..." Forbes reported 3Com is now better positioned to compete against Cisco in China.
Related links: 3Com press release. Media coverage: Forbes. Commentary: 3Com Ready For Technical and Value Investors • China's Eventual 3G Rollout Could Favor EU Vendors • Cisco's Scorched Earth Policy Claims Another Victim. Conference call transcripts: 3Com F1Q07.
Potentially impacted stocks and ETFs: 3Com (COMS) • Competitor: Cisco (CSCO) • ETFs: Internet Architecture HOLDRs (IAH), iShares Goldman Sachs Networking (IGN)

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