To all Robo fans, why the silence? Anyone who bought after the post July correction must be in the black now with USRX. And what a comeback (thanks to COMS). As usual we will start seeing a slew of good reports now from the Anal-cysts and the media.
Heres the first one from WSJ :
3Com-US Robotics Deal Seen As Strategic Move Against Cisco
By Mark Boslet
PALO ALTO, Calif. (Dow Jones)--Investors appear to be warming up to 3Com Corp.'s (COMS)
planned merger with U.S. Robotics Corp. (USRX).
And with good reason.
The combined company, with $5.5 billion in revenue, will have more heft to directly take on industry
leader Cisco Systems Inc. (CSCO). But it will do so in a way it hopes will catch Cisco off guard. The
prospect of outflanking Cisco is helping to lift 3Com shares from the low they hit late last month.
The Santa Clara, Calif., company has been spelling out its merger strategy during the past few weeks to
followers of its stock, individually and in groups. At the heart of its plan is the notion that the company
doesn't intend to attack Cisco head-on in the core data-networking market Cisco has come to
dominate.
Instead, the attack will come from the edge of the network, a spot where Cisco isn't as strong. It's a
strategy that some analysts say could win a united 3Com-U.S. Robotics important ground.
The key to the merger is 3Com's acquisition of the Total Control remote access hub from U.S. Robotics.
The remote-access product line, which provides computer users with a way to dial into or otherwise
connect to networks, is due to be refreshed this summer with more powerful technology. The
next-generation product is seen as better able to compete with market-leading Ascend
Communications Inc.'s (ASND) MAX TNT products.
Other new or reworked products are expected from the combined company, some of which could prove
successful.
But it is this edge-of-the-network orientation that advances 3Com's long-term vision for networking
and which could provide it a compelling advantage, analysts say.
At its heart, the company's vision incorporates a simplifying of network architectures. By using devices
at the perimeter of networks to make crucial traffic, security and quality-of-use decisions, the scheme
keeps decisions from being made by overworked routers and switches at the core.
''People don't recognize the strategic value of the merger,'' said Noel P. Lindsay, an analyst at
Deutsche Morgan Grenfell Inc. ''Given that network architectures appear to be evolving in a way to
shift intelligence toward the edge, this could be a good strategy.''
It is clear from 3Com's stock price that investors have been rethinking a merger they originally greeted
with a cold shoulder when it was announced in February. The company's shares have risen from the
low of 24 in late April to around 49 Wednesday.
In all fairness, a number of factors has strengthened 3Com's stock.
Worries about a serious slowing in the networking market were dispelled earlier this month when Cisco
brought in respectable third-quarter earnings.
At the same time, it has become clear 3Com gained market share during the first quarter in fast
Ethernet network access cards - a principal product line accounting for more than 40% of revenue -
despite price cuts of up to 40% from competitor Intel Corp. (INTC). 3Com shares also had dropped
27% on word of the price cuts Feb. 10.
The shares also firmed now that it appears the company has positive - or at least the absence of
negative - business trends with it as it heads toward the May close of its fourth quarter, said Paul J.
Weinstein, a PaineWebber Inc. analyst.
3Com, too, recognizes an improving reception to the merger.
''It's taken some education (but) people are beginning to get it,'' said Janice M. Roberts, 3Com's senior
vice president of marketing and business development. ''The more time we spend with people, the more
they get it.''
Getting it means understanding what 3Com means by simplifying networks. But it also means getting
over some of daunting logistical tasks of combining two large companies.
Often big mergers in the sector involve complex technologies, and management falls short of executing
flawless integration. One such networking company, Bay Networks Inc. (BAY), is still paying the price
for not setting clear goals and letting new product delivery schedules slip.
3Com said it is working hard to avoid these pitfalls. Twenty-four teams will work on merger-related
issues in advance of shareholder votes June 11. The companies hope to close their deal the same day.
One such issue is cost. Obviously, over time the company hopes to eliminate duplications, Roberts told
Dow Jones, even if it doesn't yet know what sort of staff reductions there will be. Expected, as well, is a
one-time charge of $325 million to $375 million in the quarter the deal is consummated.
Another issue is management. 3Com continues to lay out a management team, recently drawing on
managers Ross W. Manire of U.S. Robotics to oversee carrier systems while John McCartney, also of
U.S. Robotics, will oversee client/access products such as modems and network access cards.
Meanwhile, 3Com Senior Vice President Alan J. Kessler will focus on enterprise products.
But the real key is remote access, 3Com officials say. 3Com's ability to make an outright assault on this
fast-growing market is the near-term benefit of the planned combination. Linking U.S. Robotics' Total
Control remote access servers with 3Com's Ethernet and ATM switches offers Internet service
providers and telecommunications carriers a more complete way to handle dial-in calls from computer
users.
The company also will be able to sell the products through its direct sales force and international
distribution channels to markets U.S. Robotics has been less successful at reaching.
U.S. Robotics also brings 3Com its top-selling x2 modem, the fastest modem on the market.
3Com is attacking rival Cisco at a point where Cisco is weaker, in remote access, PaineWebber analyst
Weinstein said.
Nevertheless, Cisco, with revenue of almost $6 billion, will still be the largest company in the data
networking industry. The San Jose company also has new, more powerful remote-access products that
analysts expect later this year. And it is far from certain that customers will sign onto 3Com's vision for
the future of networking, probably over the objections from Cisco.
But 3Com remains convinced its new way of looking at network structures is the link between remote
access and what could be big gains for a united 3Com and U.S. Robotics. The Total Control remote
access hubs will join network cards in 3Com's arsenal of edge products.
The aim is to ''surround and shrink the core'' of the network, said 3Com's Roberts, who asserts that the
company is well-positioned to capitalize on this network change.
To do that, 3Com envisions a network where edge devices - such as remote access servers and its
network cards installed in computers - will have greater intelligence. These edge devices will be able to
communicate with other edge devices to determine addresses, effectively ''bypassing'' the need for
routers to make these decisions in the core, said John H. Hart, 3Com's chief technical officer.
It's a model that Hart said could enable networks to add, when needed, better quality service that he
characterized by contrasting first-class air travel with standard coach.
A video feed, for instance, could secure the faster connection it needs, while plain old e-mail could take
a slower route.
Hart said products implementing the company's vision could start appearing as soon as next year. One
could well be a single mobile computer card that combines the digital signal processor technology the x2
modem uses and a network interface card, he said.
3Com might also use U.S. Robotics' high density remote access technology - 24 modems on a single
card that can be packaged to provide up to 3,000 modems in the new U.S. Robotics product - in its own
products, such as the Access Builder line, he said.
Putting needed routing and ATM interfaces in the Total Control products slated for use in smaller
Internet access installations also would be an obvious synergy, Hart said.
And while the company admits it doesn't yet have the powerful, wide area network switch it needs to
better compete in the carrier market, that deficiency is not yet an ''inhibitor'' to sales, Roberts said. It
could be an inhibitor when Ascend Communications Inc. (ASND) of Alameda, Calif., fully integrates
technology from its merger partner, Cascade Communications Corp. (CSCC), she said. This is also a
product hole 3Com is working to fill, Roberts said.
Meanwhile, some analysts are feeling more comfortable with the exposure a combined 3Com and U.S.
Robotics will have on modems and network cards, which some see as ''commodity'' products other
producers could have an easy time making. Intel, for instance, has already proposed putting a network
card in the form of a single chip on a computer's motherboard next to its central microprocessor.
But in a research note Tuesday, Smith Barney analyst Therese Murphy said despite Intel's price
incursion into the adapter card market, 3Com has done well, gaining share.
It is the features and functions in 3Com's software that bring added value to the silicon, she said.
While 3Com's vision for the future of networks isn't the only one competing in the marketplace, Hart
thinks it's one that should engender excitement.
''It's huge. There's no bigger headline you could have in networking than that,'' he said. ''It's ours to
make happen.''
-hitesh |
