3Com Corp, after 13 straight quarterly losses, will farm out manufacturing of its computer-networking equipment and eliminate about 1,000 jobs, almost a third of the workforce.
The company, the world's fourth-biggest maker of computer-networking gear, will turn over manufacturing to Singapore-based Flextronics International Ltd and Jabil Circuit Inc, it said in a statement. 3Com will close its factory in Dublin, the only remaining company-owned plant, by the end of February.
3Com, based in Marlborough, Massachusetts, has had US$1.85 billion of losses in the past three years as demand for communications equipment slumps.
Sales have declined for 17 straight quarters. To lower costs, chief executive officer Bruce Claflin slashed the workforce to about 3,300 as of August from more than 10,000 three years ago.
"If you can send it to someone to be more efficient and more productive, 3Com has to do it," Jim Grefenstette, manager of the US$700 million Federated Growth Strategies Fund, said of the outsourcing agreement.
His fund holds 1.2 million 3Com shares.
3Com stock fell US$0.29 to US$5.66 at 4pm New York time in NASDAQ Stock Market trading. The shares, which have risen 22 percent this year, reached US$25.17 in March 2000.
The company trails Cisco Systems Inc and Nortel Networks Corp in sales of switches for office computer networks, according to researcher Gartner Inc.
Last year, 3Com ranked fourth worldwide in sales of data-communications gear behind Cisco, Nortel and Alcatel SA, Synergy Research Group Inc said.
3Com has increased reliance on outside manufacturers since four or five years ago, when it operated about a half-dozen plants, chief financial officer Mark Slaven said in a telephone interview.
Farming out production will allow 3Com to hire more "higher-skilled" workers such as engineers and sales staff, he said.
"We're freeing up capital and resources that can be reinvested into other areas of the business," Slaven said.
He declined to say how much 3Com would save with the latest move.
Other equipment providers, such as Cisco, use outside manufacturers to make some of the gear they sell.
"You have many companies like Cisco, they outsource the majority of their manufacturing. There are many products that they don't even touch. I think that's a sign of the times," said Harish Aiyar, an analyst at Shaker Investments Inc.
Juniper Networks Inc products are manufactured by Solectron Corp and other companies.
International Business Machines Corp manufactures chips for Juniper.
3Com's revenue tumbled 41 percent to US$175 million in the three months ended in May, while Cisco's sales fell to US$4.7 billion in the quarter ended in July.
3Com, which spun off hand-held-computer maker Palm Inc in July 2000, had quarterly sales as high as US$1.6 billion in 1998.
The company had a fiscal fourth-quarter loss of US$98.2 million, excluding a recently sold unit. 3Com said in June it saw no signs of improvement in its first quarter.
Most of the jobs 3Com is eliminating are in manufacturing and supply chain operations, it said.
The company also established a Taiwan office to design and manufacture low-expensive products, such as wireless-connection cards, Slaven said. Third-party companies that engineer and make the products, including Taiwan-based Accton Technology Corp (智邦科技), will work with 3Com employees at the Taiwan center, it said.
Flextronics, which has offices in San Jose, California, and Jabil, based in St. Petersburg, Florida, have also eliminated jobs and moved production to lower-cost regions.
"We've seen a clear shift in manufacturing," said Aiyar of Shaker Investments, which man-ages about US$760 million and owns 1.34 million shares of Flextronics.
"The cost advantage is hard to ignore," he said.
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