3Com Tries to Right a Sinking Ship

Will 3Coms recent product announcements be enough to put its stock back on track?

By Paul Korzeniowski | Posted Dec 13, 2000
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Once a high-flying Wall Street darling, 3Com Corp., of Santa Clara, Calif., tried to quash questions about its long-term viability with a multiproduct splash on Monday, November 6, 2000. The company unveiled two new Gigabit Ethernet switches, three network appliances (a Web cache, firewall, and content switch), a remote access server, Bluetooth-enabled wireless products, and additional capabilities for its NBX Voice Over IP switch.

The product debut, which the company dubbed as the largest in its history, is the most aggressive statement from the firm about its future to date. 3Com definitely tried to generate a lot of attention and have persons talk positively about the company once again, says Patrick Paczkowski, an analyst with Current Analysis Inc., a Sterling, Va. market research firm.

The network equipment supplier has been under siege since March, when it dropped slow-selling, high-end network switches, spun off its modem business, and exited the wide area networking equipment market. Enterprise customers' shock at the dramatic changes quickly turned to disappointment, and the vendor has been trying to ward off negative publicity ever since.

The new products, which are all expected to ship by April 2001, underscore 3Com's strategy to concentrate on small- and medium-sized businesses, markets that may be undeserved by competitors like Cisco Systems Inc., of San Jose, Calif. and Nortel Networks Inc., of Santa Clara, Calf. 3Com is positioning itself as an end-to-end network equipment supplier for corporations with less than 1,000 employees, notes Current Analysis' Paczkowski.

Changes and Struggles

Whether the new positioning will prop up 3Com's revenue and profit margins is unclear. Data communications equipment vendors have been caught in a rapidly changing market. Traditionally strong product areas, such as switches and routers, quickly turned into commodities and forced suppliers into profit-margin-reducing price wars.

As the largest network equipment supplier, Cisco has been the only firm to benefit from this change. The Dell'Oro Group, a Portola Valley, Calif., market research firm, found that the network equipment supplier's share of the Layer 2 and Layer 3 switching market increased from 50% to 58% since the beginning of the year. 3Com's piece of that pie dropped from 11% to five percent.

But other established data equipment vendors have also struggled. Since the year began, Cabletron Systems Inc., of Rochester, N.H., shed a few product lines and split the company up into four separate business units; and Lucent Technologies Inc., of Murray Hills, N.J., spun off its enterprise network group as a new company: Avaya Communications Inc., of Basking Ridge, N.J.

The Future

3Com's transformation is not yet complete. On January 1, 2001, Bruce Claflin, president and COO will replace CEO Eric Benhamou, who has guided the company's growth. The firm has also been paring its workforce and expects to have cut 3,000 from its roles as the year closes.

Will the changes put the company back on track? Even with the announcement, there are still questions about 3Com's long term potential but that is true for other network equipment providers as well, notes Current Analysis' Paczkowski. There is so much volatility in the market now that it's difficult to project how vendors will be faring in a few years. //

Paul Korzeniowski is a freelance writer in Sudbury, Mass. and specializes in networking and telecommunications issues. His electronic mail address is paulkorzen@aol.com.

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