Tim --
Great post.
Few comments/thoughts:
You bring up some very good points on COMS upside. Cable business, DSL, modems do have good potential in the future. COMS' gigabit products are indeed very strong. One big problem though: Products like the CoreBuilder 9000 play in the Enterprise market, and 3Com does not have the strong direct sales force necessary to make a big dent in this market. I guess it's not entirely fair, but Cisco wins a heck of a lot of business because its account control and sales force are second to none, both in quality and quantity. 3Com also lacks a worldclass customer service and support organization. CSCO is best in the business here as well.
So, I guess what I'm saying is that 3Com has very promising new products for the Enterprise, but lacks the sales force (quality and quantity), account control and strong customer service organization to take off in the network core. This limitation will also apply to the emerging converged network market .... even more so since direct relationships with SPs and telcos are key. Even CSCO, who is much more equipped, has a big challenge here.
3Com is very good at the low-end commodity business, but I still contend the stock will never perform to potential because COMS' growth and performance will always be put up against an impossible measuring stick. A LARGE majority of COMS' products are low-end. When over half of your company's entire revenues are NICs and low-end modems, you just aren't going to grow that fast. Sure, unit shipments will explode, just as prices will implode. Another 25% is in low-end switching, where prices are dropping fast or faster.
Funny thing is, but COMS plays a big part in these diving prices. To win business, COMS is known for heavy discounting through the channel. By practice, they sacrifice margin to win business. Short term that's fine, but it catches up with them in the longer term when they can't match R&D spending of the Cisco's and Lucent's of the world.
One more thought: COMS will not be a major telco/SP supplier without a strong portfolio of WAN switching and high-speed IP routing products. Maybe buying Juniper before Lucent does would be a good step. But then again, you run into the same fundamental problem: No sales force to move high-end stuff. (not saying the sales force is non-existant .. just not enough experienced quality reps ingrained in major accounts.)
So is COMS a good investment? Sure. Even with falling prices, that 75%+ low-end product mix will still provide steady, but unspectacular growth. You could do a lot worse. I just don't see the stock performing to potential thought, because there are too many cards and market dynamics stacked against COMS in regards to Street expecatations. A good company with only a few toes in the door to a huge future market. COMS could be acquired, but I would think long and hard before swallowing that pill. COMS is still suffering from USRX indigestion.
CSCO has some near-term concerns with a slowing Enterprise market, but they are fully engaged in tackling the SP/Telco market for converged networks. Thus far, the huge growth shown already in an infant market have offset a slowing (but still great growth by any sane measure) Enterprise market.
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