A good capsulating article:
3Com's drastic move shocked the industry. It surprised investors, too; however, Zacks analyst Mansoor believes 3Com's poor market response was clouded by the Palm Computing spin-off, which happened almost simultaneously with the enterprise divestiture. Arbitrage traders had a significant impact on 3Com's stock following the Palm spin-off.
But 3Com is really putting all its cards on the table. It has told the world what it's going to do, and rather than dragging the CoreBuilder products and customers through a long, slow death, the company is attempting to come clean now.
Moving forward, the company sees new product lines arriving on the market much faster and with a lower price tag. Claflin speculated that because 3Com is no longer supporting non-revenue-generating products, it will be able to offer more competitive pricing in its markets. The R&D budget will shrink by about 1 percent to 2 percent, but the overall R&D effort will focus on a smaller range of products. Thus, the overall effect is a significant improvement for new products.
Where will 3Com be in two years? The company views itself as showing expansion in new markets, with total company growth in excess of 20 percent and operating returns of more than 14 percent. "We expect ourselves to be absolute leaders in these markets," Claflin said. 3Com is trying to become a broadband company. With 3Com's leadership position in the cable modem, DSL and CDMA wireless markets, we understand why. As for the enterprise market, 3Com will continue to try to penetrate the wiring closet with high-function, high-density edge switching. But frankly, its real strength will show in the SOHO (small office/home office) and small business markets, where the word "Cisco" doesn't carry the brand recognition it does in the enterprise.
-JH |
