John,
I like your name for the combined US Robotics and 3Com enterprise:
"US Three Commies". I also like the names "3-Robots" and "Trois Coms"
chosen by the Motley Fools guys.
Anyway, may be I am in the minority, but I am skeptical that a 3Com -
US Robotics combination would be beneficial for both companies,
especially for 3Com.
The positive points I see are:
- complete network solution, secure network technology;
- wide distribution network, access to corporate by US Robotics;
- high profit margin in the modem business.
But there are too many negative considerations, IMHO:
- there are so many competitive modem technologies, none has emerged
yet as a winner: 56K, ISDN, wireless, ADSL, HDSL, cable modem, fiber, ...
I just saw in the news that AT&T just unveils its secret wireless plan
to enter into the local phone service. Each home will have a box about
the size of a pizza box that connects to a wireless network, bypassing
the local telephone companies' underground wire network. This wireless
network can transmit at 128K per second, and eventually will double that
speed to 256K/second. So the 56K modem's life will be very short.
- the purchase price (7 billion) is too steep. At the current earnings
rate of US Robotics, it would take probably 10 years before 3Com can
recuperate its investment. And by then, US Robotics's technology may
be obsolete.
- there are too much competition in the modem business: Lucent, Motorola,
Intel, Rockwell, ... all big names.
- 3Com would be better off to enter into a partnership with US Robotics
just like Cisco has with Microcom. It works equally as well as an acquisition.
- the 7 billion could be better spent on acquiring companies with
GE, FE, IP switch, fiber, wireless technologies, or companies with ASIC design
capability (ASIC is one of the weak areas of 3Com; 3Com is still buying
components for its NICs from outside vendors and that's why 3Com cannot
compete price-wise), or software companies with network management,
secure computing, data compression, or thin client technologies, companies
with voice, PBX, video conferencing technologies ...
- why buy US Robots when 3Com stock is so low (cost more shares)?
In short, 3Com does not use its money too wisely. If I am a 3Com
shareholder, I will sell immediately. Until 3Com shows that it can
compete, I will stay away from this stock. IMHO.
Mike. |
