3Com to Sell, Shut Businesses, Cut as Much as 25% of Workforce
Santa Clara, California, March 20 (Bloomberg) -- 3Com Corp.
plans to sell its dial-up modem business and some manufacturing
operations and stop making networking equipment for big
organizations, changes that will reduce its workforce by as much
as a quarter.
The No. 2 maker of networking gear will be left with computer-
connection cards for homes and offices, networking equipment for
small and mid-size businesses and gear used by Internet service
providers to answer incoming calls. 3Com expects to take pretax
charges totaling $200 million to $300 million this quarter and
next, President Bruce Claflin said.
3Com is bowing out of slower-growing businesses after failing
to make headway against Cisco Systems Inc., the largest maker of
computer networking equipment. The company already is spinning off
its Palm Inc. electronic organizer unit and now will hold on to
other areas where sales have been increasing.
``They're going back and focusing on their core strengths,'
said Mike McConnell, an analyst at market researcher Infonetics
Research in San Jose, California. 3Com is the No. 1 maker of
networking gear for businesses with less than 1,000 employees, he
said.
Shares of Santa Clara, California-based 3Com rose 3/16 to 68
3/16. The company unveiled the reorganization after the close of
regular U.S. trading.
U.S. Robotics
3Com is jettisoning the modem business it acquired with much
fanfare when it bought U.S. Robotics Corp. for about $9 billion in
1997. The acquisition came as dial-up modems that connect PC users
to the Internet reached their maximum speed. The purchase has
dragged down 3Com's earnings and share price and drawn executives'
attention from other areas, analysts have said.
3Com plans to complete the spinoff of Palm, its fastest-
growing business, in its fiscal first quarter ending in August, as
much as one to three months earlier than previously forecast. Palm
shares have risen 45 percent since the company's initial public
offering on March 1, though they're down about two-thirds from the
first-day trading high of 165.
3Com now owns about 95 percent of Palm, which also was part
of the U.S. Robotics acquisition.
Claflin declined to give specific revenue figures on the
businesses 3Com is selling or shutting down, except to say they
showed ``no growth in the last year' and were less profitable
than the rest of 3Com.
Revenue from 3Com's network systems business, which includes
the high-end switches and routers, fell 2 percent to $1.27 billion
from $1.29 billion in the six months ended last November,
according to a regulatory filing.
Sales of personal connectivity products, which includes
modems and cards that connect personal computers to office
networks, fell 17 percent to $1.16 billion from $1.39 billion.
Palm sales, as 3Com recorded them, rose 65 percent to $435
million.
Job Cuts
Under the moves, 3Com is cutting about 2,500 to 3,000 jobs
from its workforce of 11,800, Claflin said.
About two-thirds of those workers will move to other
companies, including NatSteel Electronics Ltd. and Extreme
Networks Inc., he said. The rest are likely to lose their jobs.
3Com is forming a joint venture with Taiwan's Accton
Technology Corp. and Singapore's NatSteel to make Internet-access
gear. 3Com, which will own less than 20 percent of the new
company, will sell its dial-up modem business to the venture for
an undisclosed price. The venture plans to sell shares to the
public.
NatSteel is also buying 3Com's manufacturing operations in
Mount Prospect, Illinois, for an undisclosed price and will retain
all of 3Com's 1,200 employees there.
In addition, 3Com will steer large-business customers to
Extreme Networks, which was founded in 1996, under an expanded
alliance.
The company unveiled a new logo: three metallic-looking
rings, two of them linked and one separate. The separate ring
could signify 3Com's equipment for wireless networks, Claflin
said.
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