To: Steve Porter who wrote (28144 ) 2/17/1999 6:40:00 PM From: Doughboy Read Replies (3) | Respond to
Steve, I agree with you that we all tend to overexaggerate our feelings about 3Com. But you have to admit, there is some cause for concern when COMS moves from 51 back down to 31 in three days (-40%) after it took several months to get up there. I was in on 3Com at 56 and averaged my way down to the low 30s. So this has been essentially a dead investment for 2+ years. In contrast, CSCO (which I bought at the same time at close to the same price as COMS) has gained over 200%. In the recent downdraft, Cisco has retreated only 25%, and I'm willing to wager that Cisco will get back to its 52 week high sooner than 3Com will. What I see as the problem is that 3Com is too diversified. When its consumer edge products (modems NICs) get straightened out, the network products take a hit. When the network products explode, they have another channel inventory backup on modems. Granted, the day 3Com hits on all cylinders, this stock is going to rocket; but IMO, it's just as likely that we have another period when all their business units struggle. Eric B. always seems to be beating down inventory/competition/pricing concerns in one business unit after another. My solution: start spinning off some of the businesses that don't have synergies. First: Palm. Consumers have a love affair with it, but it is too small a niche to add much to 3Com's bottom line (10-15% of revenue) and 3Com still hasn't figured out a way to leverage Palm to add business to its other areas. We would realize a lot more shareholder value from a Palm spin-off than keep it as a discrete, hidden part of 3Com. If I had my druthers, I would also sell off the consumer modem segment and the NICs business (but I've been attacked as being shortsighted for saying that before). 3Com's future, IMO, is to attack the networking segments where it has had success against Cisco in the past. This is the market that is growing, and as Cisco focuses on locking horns with Lucent in the carrier space, 3Com can pick off the small and medium businesses, and occasionally it can land a big fish like BellSouth (as it did today). NICs, modems, and Palm are all demand-constrained, and their market segments' growth rates are flattening--if not shrinking during a recession. If you need any more sign that 3Com has too many pots on the fire, it is the fact that in three of its business lines it faces three of the fiercest competitors in technology today: vs. Microsoft in handheld, vs. Intel in NICs, and vs. Cisco in networking. It cannot hope to defend all these flanks at the same time.
