3Com Would Lower Cost of Chips With Joint Venture, Analysts Say
Santa Clara, California, July 23 (Bloomberg) -- 3Com Corp.
likely would reduce the cost of making chips for its low-cost
products if the No. 2 computer-networking company forms a joint
venture with Accton Technology Corp., analysts said.
On Monday, the networking industry trade magazine Smart
Reseller, citing internal 3Com documents, said the company was
planning to invest about $7 million to start a chip-making
subsidiary with Accton, a Taiwan-based networking company. 3Com
and Accton officials declined to comment on the report.
3Com is looking to lower manufacturing costs as large
competitors, including No. 1 chip maker Intel Corp. and No. 1 PC
maker Compaq Computer Corp., push into the market for low-cost
networking gear such as low-cost computer switches and network
interface cards, or NICs. 3Com's profit margins on sales of those
products have narrowed this year amid stiff competition from
Intel and No. 1 networking company Cisco Systems Inc.
''If 3Com is serious about driving down costs, (pairing with
Accton) would be a good idea,'' said Martin Pyykkonen, an analyst
with CIBC Oppenheimer who rates 3Com ''hold.''
Making low-cost networking gear has become ''a commodity
game'' similar to the semiconductor and PC markets, a trend which
favors Intel, Compaq and others who can produce a high volume of
product at low cost, Pyykkonen and other analysts said.
Taiwan-based Accton had sales of $6.18 billion for the year
ended in December, up 91 percent from $3.32 billion in 1996. The
company makes NICs, switches, networking hubs and so-called
application-specific integrated circuits, or ASICs, chips which
are the brains behind all networking equipment.
''Accton knows how to make ASICs fast and cheap,'' said Tam
Dell'Oro of the market research firm Dell'Oro Group in Menlo
Park, California.
According to the Dell'Oro Group's latest report, Accton was
the No. 10 maker of low-cost switches for the first quarter. 3Com
was No. 3 behind Cisco and Cabletron Systems Inc.
3Com makes some of its own ASICS and also buys more
expensive chips from Lucent Technologies Inc., Texas Instruments
Inc. and others, said Brendan Hannigan, an analyst with market
researcher Forrester Research in Cambridge, Massachusetts.
Like Intel, 3Com has been developing ways to build more
networking functions into its chips in an effort to reduce the
costs of its equipment.
''The 'siliconization' of the networking industry is an
unstoppable trend,'' Hannigan said.
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