>>but I just don't buy Eric's rationalization that he can defend the market for NICs and modems from increasing commoditization and the lower margins commoditization brings.<<
As far as modems are concerned, there's a limit as far as they
can go. But xDSL and Cable Modems will be around later on, and
COMS will be the premier maker of these toys...because they usually
make their products of top quality and are an efficient
manufacturer.
I think you're taking the NICS thing a little too far. 3Com
is a whole lot more than NICS, and it's approach on NICs will
be it's approach on everything else it does. NICs happen to
be one of the lowest points on the food chain. But still, if
it can be successful with NICs, it can definitely be successful
with all its numerous products. NICs may only comprise about
10% of profits next year (just a rough estimate), but it
can make these so darn well, that it is a monopoly as far as
a quality product that has great demand and great market share.
I think this is pretty good for a product that is 10% of its
profits. And just like MSFT keeps making new version of Win '95,
or NT, the same can be said about 3COM's products. For example:
after 56K modems the next version is xDSL or Cable...
>>Windows wasn't a commodity, it was a monopoly.<<
btw, Windows has other operating systems that compete, not
the least is Unix and Linux. But, yes, they are a monopoly,
and 3Com NICs are pretty much a monopoly also. At least for
high quality NICs, which I believe can be improved in numerous
ways.
>>In my own experience, I recently bought a US Robotics modem that has all sorts of features like a speakerphone that I have no idea how to use and have no interest in using..<<
I think your talking about consumer retail. I always think in
terms of large, medium, & small businesses. I never use my
PC at home, because after using my T1 line at work, I can't
stand anything slower. At home, I wouldn't have need for
a NIC, but at work, I am connected to almost 500 people in
my 'department'. I see NICs as something that can make the
communication between us all 100x more enriched. This will be
the same for all the LAN components of our area. If I was
just thinking of my home use, I'd sell my 3Com shares right now.
>>NICs are sold primarily on the basis of price,...<<
yeah, low level NICs, but 3Com is transitioning to the newer
NICs. From what I hear, they are gaining good acceptance,
and in '99, the added features will be much more in demand.
Also, a lot of systems integrators want to build their system
so it's scalable to the next generation of products. Putting
cheap NICs will either make your environment obsolete,
or you'll just have to replace a hundreds of them next year
or so.
>>Further exacerbating commoditization of NICs is the fact
that there is an oligopsony in the purchasers of NICs (ie, concentration of purchasing power among box-makers); this prevents 3COM from installing too much intelligence in NICs that box-makers don't want.<<
From what I understand, a lot of box-makers are deciding to
go with the more advanced NICs. It just depends on the box-makers
strategy, or who their selling to, etc.
~~~~~~~~~
Like I said before, NICs & modems, is not why I own 3Com. I would
sell right now if that were the case. 3Com is many more
sophisticated products. Most of them, after a number of years,
and with competition, will come down to the level of NICs.
But using the NIC example from above, it demonstrates how 3Com
plans on making $$ from each of their products after they
become very popular and bring on increased competition.
One last thing. We haven't even discussed how 3Com plans
on reducing costs. Even if all you say is true, if a company
can make their product cheaper, then it still will be
successful. COMS is pretty good at that kind of angle also.
And as Wigglesworth once pointed out, P & G became a very
successful company by very low margin products.
btw...I enjoyed your post...hopefully other people will comment
on what we've said. (and point out where we are wrong)
I know there's a lot of other people that are more familiar
with the technical than I am.
regards,
joe
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