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Technology Stocks : 3Com Corporation (COMS) -- Ignore unavailable to you. Want to Upgrade?

To: drmorgan who wrote (27733)	2/6/1999 4:17:00 PM
From: bgg	Read Replies (1) \| Respond to of 45548

Derek -- A little more background, although it would be hard to pack in all into a post... 3Com was founded by Bob Metcalfe, who is considered the 'Father of Ethernet." Smart guy, but he and the management took 3Com down the WRONG path in the 80s: Network Operating Systems. 3Com's offering was called 3+ Open (?) They had a alliance with Microsoft, although in never amounted to anything. 3Com was essentially competing against Novell, when Novell was bigtime. 3Com lost, and layed off lots of employees. Stock was next to nothing. In 1991 (?) 3Com merged with a company called Bridge Communications, which was a strong, emerging player in the network equipment market (hubs, bridges, etc.) Eric B. came with the Bridge merger, and soon ascended to the top at 3Com. Eric B. completely rehauled the company's strategy to focus on networking hardware. He had the vision to see the opportunities. Unfortunately for 3Com, and fortunately for Cisco, 3Com did not capitalize on its superior position in the emerging networking hardware industry, and whiffed on the chance to own the router industry. Cisco's founder "invented" the first multiprotocol router, but 3Com at the time had the best market position to capitalize. They did not, but still did pretty good for themeselves building the NIC business. Eric B. also undertook the "expansion by accquisition" strategy before Cisco even considered it. 3Com made several acquisitions, including switching companies, when it was apparent the LAN switching market was going to explode. Cisco reacted far later than 3Com, but 3Com still turned out to be second banana for one key reason: account control and install base. By the time LAN switching was taking off, Cisco dominated the enterprise routing market, complete with its IOS software running across networks. Plus, Cisco had the direct sales force deeply entrenched in Fortune 500 accounts. 3Com didn't have the sales force or install base to really capatialize on its smart acquisition moves to jump into the switching market. Don't get me wrong ... it's all relative. 3Com is still a very successful player in this market. They could easily look back to missed opportunities in the early 90s that could have easily changed the industry landscape. So while the network industry was exploding with hypergrowth in the mid 90s, 3Com was very focused on shedding its "NIC company" image and move towards a more Cisco-like "systems player." Bob Finnochio led this side of the house. There were rumors that 3Com wanted to buy Cascade (since bought by Ascend, and now part of Lucent) to really get into the WAN switching market. 3COm balked at the price (so did Cisco). Cisco opted for a similar play in Stratacom ... 3Com decided to move in an entirely different direction .. instead of going head-to-head with Cisco, Eric B. decided to undertake a "surround and conquer" strategy by dominated the low-end market, and buying USRX. Good strategy to a point, but that deal gave 3Com a huge (70%+) low-end product mix that will hunder it's ability to grow with the industry. Also, 3Com's total lack of carrier presence (could have had it with Cascade) makes it very difficult to play in the next hypergrowth market, which makes the data networking growth look like peanuts. By the way, Finnochio lefet 3Com soon after the USR acquisition. He was thought to have favored the Cascade route ... the route not taken. Whew! Sorry for the rambling discourse. Plenty of stuff that I've left out here, but hopefully it provides a little perspective. Summary: 3Com had its chance to really dominate, but missed it early on. BUT .... Eric B. deserves a heck of a lot of credit for bringing 3Com back from the dead and making it a great company. (Just not as great as Cisco! ;) ....and when I say "great", I mean as an investment.