3COM's potential ??
3Com looks puny next to Cisco's $30 billion. But 3Com has done what it takes to have a fully featured product at a price Cisco cannot touch. The JV has talented Chinese engineers working with a small core of talented 3Com engineers. The JV has low labor and factory costs. But that Chinese approach even has a Tom Peters (the motivational speaker) touch. My early reports indicate the JV will ship fully configured routers at a price at least 20% below Cisco.
Tom Peters tried to convince managers that options cost money. A product with many options could be manufactured much more inexpensively if only a few option groups were used. The JV's router is a good example. Fully configured, they attacked Cisco's biggest weakness -- lots of options and field upgrades. They also made manufacturing much simpler. They only have two test routines for their product -- one without the software option and one with the software option. Their router only has one option!
Enterprise customers will come slowly to 3Com. Many have had bad experiences with 3Com entering and exiting markets. There will also be a lot of fear, uncertainty and doubt spread by Cisco. But, a quality product that is services well will find the enterprise market.
3Com could be a hot stock because of this 'steady' build of business. The sales will grow rapidly because 3Com is a fraction of Cisco's size. Small companies, those strapped for dollars, and many Asian companies will find the JV quickly. There will be a burst of sales. Wall Street will be treated to a steady build of business and new products. When the large enterprises start to see this product is widely use, they will buy. That, though, may take 2 years -- and requires that the JV not have quality or service problems.
It is not hard to see 3Com becoming a $50 stock (a 10-bagger) by January, 2005. Although 3Com was over $100 in 2000, that was a different time -- and 3Com in my opinion had little to offer at that time. 3Com has a lot to offer now.
Cisco has 7 billion shares; 3Com has 368 million shares. With 18 times as many shares and selling at almost 4 times the price of 3COM, you get a feeling for how big Cisco is -- and how big 3Com's long-term opportunities are. And the market size is not frozen either!
Will 3Com live up to the potential? There will be many people you can find who will say no. They will quote from the past and talk about previous lost opportunities. Should you listen to this? Yes, it does show where the company has been. Be sure to listen for the source of the $1.4 billion in cash. There are two sides to this story! Then look at this JV. Unfortunately, the future of manufacturing looks like it has China written all over it. Cisco uses low cost foreign sources. But, we are talking lowest costs -- right through engineering. Do not let anyone lead you to believe that 3Com will not put a lot of pricing pressure on Cisco -- and make a nice profit while doing it. 3Com and the JV may produce poor product. If they do, 3Com will have a long row to hoe to get the JV on track -- and may sell for much less than $5 again.
- from motley fool's 3COM msg board (by dduct) |
