During the outsourcing and mobilewireless eras 3com

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considering that 3Com posted negative earnings from 2001 through 2006. During the outsourcing and mobile/wireless eras, 3Com continued to divest itself of ancillary product lines, which raised cash for the firm (Hoover’s Online, 2010). Additionally, the firm began to move aggressively into Asia, particularly China. Its acquisitions and strategic alliances produced new products and sales (Mergent Online, 2010). China is the source of over half of 3Com’s sales (Value Line, 2010). These actions helped 3Com return to profitability and a positive cash flow by the end of the wireless era. Ericsson (ERIC), one of the largest Swedish companies, is a leading provider of telecommunication and data communication systems and related services covering a range of technologies, including especially mobile networks. Directly and through subsidiaries, it also has a major role in mobile devices and cable TV and IPTV systems (Value Line, 2010). Throughout the 1990s, Ericsson held a 35-40% market share of installed cellular telephone systems (Hoover’s Online, 2010). Like most of the telecommunications industry, Ericsson suffered heavy losses after the telecommunications crash in the early 2000s. It was forced to do a 1-for-10 reverse stock split in 2002 (Value Line, 2010). On October 1, 2001 the handsets division formed a joint venture with Sony called Sony Ericsson. Ericsson is now a major provider of handset cores and an infrastructure supplier for all major wireless technologies (Hoover’s Online, 2010). It has played an important global role in modernizing existing copper lines to offer broadband services and has actively grown a new line of business in the professional services area. Ericsson’s focus on the hardware for networks has allowed it to survive the rough times. Its North American business is less than 10% of total sales while Europe is more than 50% of revenues (Value Line, 2010). Ericsson, while considered a quality
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Page 91 Academy of Accounting and Financial Studies Journal, Volume 15, Number 4, 2011 product, has never been able to make a huge dent in North America because its wireless products are functional but without the features of an iPhone or BlackBerry (Business & Company Resource Center, 2010). In contrast, its network hardware has a strong reputation and is the growth engine for the firm. The firm’s net profit margin bounced from negative values in 2001 and 2002 to over 11% by 2004. Its focus on infrastructure hardware is profitable; the net profit margin has been close to or over 15% since 2005 (Mergent Online, 2010). U.S. investors have not recognized fully the strengths of Ericsson’s business. The lack of a consumer presence has resulted in a declining P/E ratio. Ericsson’s P/E ratio was close to 90 in 2000 but less than 20 since 2004 (Value Line, 2010). It is one of the few technology companies to pay a dividend, which increased yearly since the 2005 reinstatement. Over the entire 120-month period, Ericsson has the lowest total return.
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