3COM could be bought, read the article
(a little old)
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3Com to bore into backbone Enterprise chief believes 3Com could be bought.
By JIM DUFFY
Network World, 03/08/99
SOUTHBOROUGH,
MASS. - 3Com's top enterprise networks official last
week acknowledged that the company has made
some "unforgivable" mistakes in the enterprise market,
but he outlined a strategy he says will propel the firm
to the forefront of the emerging market for converged
voice and data networks. That is, if 3Com doesn't get
bought first.
3Com has set in motion an ambitious
plan focused on high-availability
products, direct customer relationships
and high-profile partnerships that
should enable the company to better
compete against Cisco and others for
large customers' backbone network
needs, says Edgar Masri, 3Com's new enterprise
networks chief.
However, this strategy is unfolding before an uncertain
financial backdrop. In an exclusive interview last
week with Network World, Masri acknowledged
that "customers should be concerned" that 3Com
could be acquired as a result of its sagging stock price
and a general market slowdown.
"I'm not saying that we'd like to be acquired. All I'm
saying is that given the slowdown in the market . . .
there is a risk that some companies will start looking
at us and see that 3Com is undervalued," Masri says.
"But I like to think our customers know we're not
going to do anything stupid. We believe that we have
enough strengths to go ahead independently."
Masri made his comments last Wednesday, one day
after 3Com CEO Eric Benhamou warned that
third-quarter revenue and earnings would fall below
Wall Street expectations, in part because of slower
enterprise sales in the U.S. and Latin America.
As of last Friday morning, 3Com's stock had lost
more than 40% of its value since the beginning of
February.
3Com is a leader in the small to mid-size enterprise
market and in selling network interface cards and
stackable workgroup switches to enterprises of all
sizes. But the firm has made little penetration into the
core of large enterprise nets.
When 3Com wins the core of an enterprise's network
business, 95% of the time it also wins business at the
edge of the customer's network, Masri says. But the
inverse is not necessarily true.
Indeed, while 3Com is very strong at the edge - it is
the leading supplier of stackable LAN switches for
wiring closets - it has a "measly 2%" share of the
market for larger chassis-based systems that reside in
the network core, Masri says.
Masri recently took over for Ron Sege, who left to
join Internet search engine company Lycos.
As the No. 2 data network supplier to enterprises
worldwide behind Cisco, why is 3Com not more of a
force in the core of large enterprise nets?
"We missed, in the past six years, two key cycles:
basic high-density chassis with nice routing technology
and 10/100 in the core," Masri says. "I believe it's an
unforgivable mistake for a company like 3Com."
But the company has now corrected its errors with
the CoreBuilder 9000, a 16-slot, 128G bit/sec frame-
and cell-switching chassis, and "one of the better
platforms on the market," Masri says. 3Com plans to
focus on the CoreBuilder's redundancy features and
gigabit and Layer 3 switching capabilities, in order to
carve out a niche in the enterprise core.
But 3Com hurt itself by taking so much time to roll out
the CoreBuilder 9000. Almost a year elapsed
between its announcement in late 1997 and shipment
in the second half of 1998.
As a result of the product delay, 3Com hasn't been
able to establish the track record that other
companies have in the core enterprise network gear
market, says Mike McConnell, an analyst at
Infonetics Research in San Jose.
Competitors have noticed. 3Com rarely shows up in
large systemwide enterprise bids, claims Basil Alwan,
vice president and general manager of Nortel
Networks' enterprise products division.
"Traditionally, 3Com has not put their focus there,"
Alwan says. "It's a very hard business to get into later
. . . if you don't have an established presence."
It's also a tough time to be charging after enterprise
accounts, given a general malaise in the market, Masri
says. The impact of customers putting off enterprise
net upgrades to take care of Y2K issues has been felt
throughout the industry, he adds.
But in enterprises where the company has established
a presence, 3Com has satisfied. Sears Credit in
Hoffman Estates, Ill., is using 3Com's CoreBuilder
9000 in the core of its Gigabit Ethernet backbone.
"When you make investment decisions in a large
organization, obviously they're not solely based on
technology," says Rory Herriman, systems manager at
Sears Credit. "They're based on items such as service
and support, usability and manageability. From that
perspective, 3Com works well for us."
It wasn't always that way. 3Com has had to push
hard to build a sales and support infrastructure for
large enterprises that involves lots of pre- and
post-sale assistance, Masri admits. Traditionally,
3Com has sold its gear to resellers and let them take
care of customers.
"We have spent the past year fixing a lot of this, and I
feel like we are now just emerging with a system that
is reasonable," Masri says. "But we've lost some
momentum."
Perhaps 3Com's alliance with Siemens will get the
company going again. The two companies are
combining 3Com's data communications strength with
Siemens' voice network experience to offer customers
an integrated collection of products supporting IP
telephony and related technologies.
Masri says Siemens' relationships with large
customers should help 3Com to open doors.
Microsoft also plays a key role in 3Com's
convergence story, Masri says. Microsoft and 3Com
formed a partnership in January to embed Microsoft's
operating systems into 3Com network gear, including
voice/ data convergence offerings.
"The Siemens/Microsoft story is all about voice on the
high end and low end," says Virginia Brooks, an
analyst with Aberdeen Group in Boston. "It's possible
for them to gain some presence in the enterprise
through that combination, but I don't think that's really
pulling them into the core."
Maybe 3Com just has to wait for Cisco to slip up.
"Even in the large enterprise, customers want to have
options," Masri says. "Cisco's current position is not
sustainable." |
