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This is a quote from an article about 3COM:
"In most of the markets 3Com is targeting it faces entrenched competitors: in Gigabit Ethernet, it trails Intel Systems Inc. (NasdaqNM:INTC - news)"
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Sunday February 25 4:50 PM ET
3Com Hopes for Turnaround by Aiming at Network Edge
By Eric Lai
SANTA CLARA, Calif. (Reuters) - 3Com Corp. (NasdaqNM:COMS - news), which once entertained ambitions of dominating the networked world, is now looking to pull back and pick its shots as it attempts to recover from a long slide.
The company, which once rivaled Cisco Systems Inc. (NasdaqNM:CSCO - news) and followed its strategy of growth by acquisition, is now aiming at select niches in high-speed networking to desktop computers and wireless access for businesses, the new 3Com chief executive told Reuters.
At the same time, 3Com is continuing its broad cost-cutting efforts as it seeks to regain profitability by early 2002. The goal is to slash some $200 million to $250 million in expenses by cutting or spinning out money-losing product lines.
3Com, best-known for introducing Ethernet networking to the world, confirmed this week it is eliminating about half of its contract workers in an attempt to save about $50 million.
``For businesses that can't meet the numbers, they won't be in 3Com for a long time,'' said 3Com Chief Executive, Bruce Claflin in an interview with Reuters earlier this month. ``It's a little hard-nosed, but it's essential for our success.''
Claflin, who took over as CEO in January, is promising a tightened operational focus around two goals: extending 3Com's reach into the ``edges'' of large-scale next-generation networks, and making its networking equipment as easy to use as it is powerful.
Tale Of Two Companies
Nobody is expecting 3Com's turnaround to be quick. Sales have fallen year-over-year for the last seven quarters. For its fiscal 2001 ending in May, 3Com is expecting revenues to be about 25 percent less than the $4.3 billion recorded in fiscal 2000.
Investors remain wary, as 3Com has disappointed Wall Street over the past year with mounting losses and strategy zigzags. 3Com ended regular trading on Friday at $9-1/32, down more than 60 percent from its 52-week high, after adjusting for the impact of spinning off Palm Inc. (NasdaqNM:PALM - news) last year.
The number of Wall Street analysts covering the stock has also shrunk to a mere handful as institutional interest has waned.
Founded in 1979, 3Com created the market for Ethernet cards, which plug into the back of personal computers and allowed them to communicate via local area networks. Simple and lucrative, networking cards were at their peak a billion dollar annual business for 3Com.
3Com maintained its edge over newer, cheaper competitors by pushing the standard speed for networking cards to 100 megabits per second from 10 megabits per second.
``Without a doubt, 3Com has been the leader for most of the life of the networking card market,'' said Jason Smolek, networking analyst at International Data Corp.
As late as 1993, 3Com and cross-Valley rival Cisco, whose trademark network router dominated the wide area networking space, were virtually neck-and-neck, in terms of sales.
But with Cisco zooming ahead by introducing new products and aggressively buying new companies, 3Com embarked on a similar, but less successful course, culminating in its $9 billion purchase of modem maker U.S. Robotics in 1997.
Buying U.S. Robotics led directly to the development of 3Com's biggest recent hit -- the hugely-popular Palm devices. But it also resulted in hundreds of millions of dollars of unsold modems for 3Com and a battered stock as investors reacted to the inventory pile-up.
Today, Cisco is a $195 billion dollar company with a run rate of nearly $24 billion in annual sales; 3Com has a market capitalization just one-sixty-fifth the size of Cisco's, and an annual sales run rate just one-eighth the size.
After years of expansion, 3Com finally admitted defeat last year and began to exit businesses -- such as high-end network routers, with which it once hoped to topple Cisco.
From Small Businesses To Big Corporations
Enter Claflin, who helped institute the cutbacks as 3Com's president and chief operating officer for the past two and a half years.
``My criticism about our company looking backward is that I think we got too diffused over different products and technologies,'' said the 22-year IBM veteran who headed worldwide sales and marketing at Digital Equipment Corp. before coming to 3Com. ``We couldn't figure out who we were. Now we're striving consciously to always be delivering on this idea of functionally rich, radically simple networking solutions.''
3Com remains intent on scaling up the value chain from small and medium-sized businesses toward large corporations, where Cisco remains the market-leading, 800-pound gorilla.
For one, 3Com is raising the bar on Ethernet again, and aggressively touting Gigabit Ethernet networking cards that can zip data along as fast as one billion bits per second. These cards, which hook up PC users to the network at large, are one way 3Com will attempt to dominate the network edge, Claflin said.
3Com is also touting gear such as intelligent hubs and switches and Web caching products, both of which can redirect traffic so that it skims along the outer edges of networks -- avoiding increasingly-congested central routers -- for faster travel.
``Intelligence in the network is moving outward, and that favors us as an edge company,'' Claflin said. And for all of these products, making them as easy-to-use as possible will attract corporate IT managers, especially when they consider how to support remote branch offices with few technical staff.
Claflin downplayed expectations for Audrey, 3Com's new Internet-enabled information appliance aimed at consumers. Some had hoped Audrey would immediately replicate the success of the Palm, but Claflin said Audrey, a white-colored, easy-to-use box that 3Com envisions will be used in the kitchens of well-off suburbanites, was still very much in ``market development'' stage.
In most of the markets 3Com is targeting it faces entrenched
competitors: in Gigabit Ethernet, it trails Intel Systems Inc. (NasdaqNM:INTC - news); in wireless, it is behind companies like Symbol Technologies (NYSE:SBL - news), Lucent Technologies Inc. (NYSE:LU - news) and Cisco.
Claflin acknowledges that the weakened economy and slowing corporate spending on information technology -- which caused 3Com to report second quarter sales that were down five percent from the first quarter -- might mean these markets may take years to develop.
``The conditions that affected our business last quarter are still in place today,'' he said. ``But the underlying demand is real.''
But IDC's Smolek argued that because these markets remain nascent, 3Com has as good a chance as any other player.
``If 3Com is aggressive enough, they can catch up, as these are still very young markets,'' he said.
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