Huawei-3COM

Good discussion on Huawei-3COM in this weeks Barron’s.

If you’re hot to get in on the Chinese Telecom/Datacom hardware trend, 3COM (COMS) is your best vehicle. I wonder how Huawei-3COM has approached accounting issues…

Fred Hickey, editor of “The High-Tech Strategist Newsletter” gives a summary of the case for owning 3COM.

Hickey: My last long is a tech name. It’s pretty hard these days to find value stocks in tech. 3Com is a highly speculative long, a turnaround story. The company has lost out to networking-industry gorilla Cisco in recent years. It was as high as $25 a share in 2000, and it’s now $4. Revenues have stabilized after declining for some time. The company has had four consecutive quarters of sequential revenue growth. The last was 22%, year over year. Again, they make routers and switches, just as Cisco does. They have a strong Voice-over-Internet Protocol [VoIP] product line, which is a hot category. They sell security products, due to the recent acquisition of TippingPoint. Their connectivity-product line has depressed overall results, and is nearly gone. 3Com has a $1.56 billion market cap, and $754 million in cash. The enterprise value is around $800 million, or about one times sales. The company burned through $28 million of cash in the latest quarter, but that’s been improving. At this price it is intriguing, especially when you consider the hidden jewel.

The hidden jewel?

Hickey: A few years ago 3Com set up a joint venture with Huawei, the largest networking company in China. Huawei-3Com is growing rapidly, and it’s causing Cisco great grief. Cisco talks about the Chinese threat in every conference call. The joint venture has grown to a run rate of $500 million in sales, based on the last quarter and the current one. It has had four sequential quarters of double-digit reve