MA:
Still hanging out here even though I currently own no COMS. However, I'd take issue with your point that:
the company is very well positioned in many emerging markets, such as Wireless, Broadband (ISDN, Cable, DSL and last but not least Optical Ethernet which is slated to be 10 times faster than Cable and DSL), VoIP, LAN Telephony and Home Networking. These are areas that we all know will have exponential growth and 3Com is a Vanguard in each and everyone of these fields. Most of these are still in there nascent stages but 3Com has already carved a leadership position in most of them.
I recall about a year or so ago the head of 3Com's modem division claiming (in a Barron's article I think) that the cable/DSL modem market was 3Com's turf and that they'd be the leader in the market. The latest data shows that they've fallen well short of that goal:
PHOENIX--(BUSINESS WIRE)--March 1, 2001--
7.8 Million North American Homes Now Online with High-Speed Internet Connections, 70 Percent Use Cable Modems
Kinetic Strategies Inc., publisher of Cable Datacom News (www.cabledatacomnews.com), Thursday announced that 7.8 million households now subscribe to broadband Internet services in the United States and Canada. Of this total, 5.5 million homes use cable modems, compared to 2.3 million residential digital subscriber line (DSL) customers, yielding cable multiple system operators (MSOs) a 70-percent share of the residential broadband Internet market.
According to Kinetic Strategies, MSOs finished 2000 with 4.8 million installed cable modem customers, more than doubling the 1.8 million residential DSL subscribers at year's end. In 2000 North American MSOs added 3 million cable modem customers, eclipsing the 1.4 million residential DSL subscriber additions by telcos and DLECs.
In the fourth quarter of 2000 MSOs added 1 million cable modem customers versus 553,000 residential DSL additions. At the end of 2000 some 64 million homes were eligible to receive cable modem service, equal to 59 percent of all North American cable homes passed. AT&T Broadband (NYSE:T) and Time Warner Cable (NYSE:AOL) lead the industry each serving more than 1 million cable modem subscribers.
According to Kinetic Strategies, worldwide shipments of cable modem products based on the DOCSIS standard surpassed 6 million units in 2000, a six-fold increase over 1999. North American shipments accounted for 68 percent of the 2000 total, equal to 4.8 million units, up from 718,000 units in 1999. For full-year 2000 Motorola Inc. (NYSE:MOT) led the DOCSIS modem market with a 38.1-percent share, followed by 3Com (NASDAQ:COMS) with 17.2 percent, Toshiba with 13.2 percent and Thomson Multimedia with 11.4 percent. Additional information is available at www.cabledatacomnews.com.
I've had cable modem service for over 2 years now, I started with a Terayon unit that had to be replaced about a month ago with a new Terayon DOCSIS compliant modem, which turned out to be DOA. The Cablevision tech who diagnosed its DOA status told me to get a Motorola unit if I could (made by the broadband MOT division which is the former General Instrument) because it was the most reliable and had given them the least trouble, and a 3Com as a second choice (Cablevision offers all three models, take your pick or whatever they have in stock). That preference seems to be reflected in the respective market shares of MOT and COMS cited in the article above.
If all 3Com can do is get to a 17% market share in a commodity business segment where they ought to dominate, there's something wrong with their business model and/or product. Not only does their cable modem product not have the best technical record (based on my limited sample), they are still stuck moving the bulk of their sales through a two tiered channel/retail system. Keeping their products cost competitive with others means their profit margins wind up being lower than they would be with a more direct sales approach.
Each of the potentially high growth markets 3Com is targeting are intensely competitive. Prices will come down, margins will shrink, and products will become commodity items just like the analog modem business they bought through USRX did. USRX grew and profited by staying one jump ahead of the competition (which included Hayes who they bankrupted) and continually pushing the envelope, and I believe they held over 60% market share when they merged with 3Com in 1997. I see no sign yet that 3Com can move fast enough to either become or remain a leader in any of the markets they are targeting. Wherever they seem to have a lead, others play catch-up and overtake. Their failure to grab the lion's share of the cable modem market is just one warning sign that they are not going to be successful in their re-invention of the company.
I agree that COMS is a low risk compelling buy here. I thought that last July when I bought a ton of COMS at $12 and later at $15-$16, but both times for short term trades and not LTB&H. Fortunately, I sold the first position at around $18, and most of the the second at $20, having learned over the years that with 3Com, you need to see some results rather than just buying the potential.
So for now I'm staying out of COMS until I see some signs of movement, either in the stock or their market success, because it's dead money (IMO) for 6 months or so at least, and other tech companies will recover quicker when this present doom and gloom lifts. so I'm back to watching.
You always do seem to act on your convictions, so good luck to you here, with 3Com, you may need it.
David T. |
