"Network Players Brace For Shakeout"
May 6, 1999
Sm@rt Reseller via NewsEdge Corporation : Fore sells out, 3Com
regroups and Cisco keeps buying.
By John Moore and Joseph C. Panettieri
The next time you call one of your networking partners, it may have a
new name or a new owner. Indeed, networking companies are
gobbling up each other in a bid to more effectively compete against
Cisco Systems, Lucent Technologies and Nortel Networks. And at
least one high-profile executive, Cisco CEO John Chambers, expects
the consolidation to continue.
Just last week, Britain's General Electric Co Plc (no relation to U.S.
giant General Electric) purchased ATM specialist Fore Systems for
$4.5 billion. Fore, based in Pittsburgh, will become a wholly owned
subsidiary of GEC and will work closely with the European company's
Marconi Communications arm. Other recent deals include Nortel's
purchase of Bay Networks, the Lucent/Ascend combo and Cisco's $2
billion bid for CTI specialist GeoTel.
Several factors are driving consolidation in the networking market. For
starters, margins are falling fast which means vendors need to rapidly
refresh their inventories with new products. Tom Stevenson, VP of
worldwide channel marketing at Cisco, estimates that resellers are
making 10 points on each networking box they sell, down from 25
points only a couple of years ago. Further complicating matters,
data-networking companies and telecom giants are trying to position
themselves for so-called converged networks which merge voice,
data and video traffic onto IP networks.
With those trends in mind, Cisco's Chambers predicted Fore's sale only
days before the deal was announced. Chambers offers similar
predictions about 3Com and several other networking companies.
"I think [3Com] will continue to be a tough competitor," says
Chambers. "Whether they will combine with someone else or someone
else will combine with them, time will tell. But I think it's inevitable
that 3Com, Fore, Cabletron and Newbridge either acquire more
themselves or be acquired. "
Most recent takeover rumors focus on 3Com, which is said to be
entertaining offers from several firms, including Ericsson and Siemens.
All three companies declined to comment, but the rumors have
boosted 3Com's stock more than 10 percent over the past week.
No Distractions Here Regardless of the rumors, 3Com is striving to
revamp its channel programs in an effort to boost sales. In a radical
departure from many of its peers, the networking company is
bolstering support for smaller resellers as well as high-end partners.
In revising its Networking Partners Program, 3Com has done away
with the multitier structure typical of many channel programs.
Instead, the company now operates a single core program, with
optional programs designed for resellers targeting particular customers
or pursuing specific business models.
The upshot: 3Com is able to back smaller resellers as it continues to
support higher-end resellers, company officials contend. 3Com's
strategy contrasts sharply with other product vendors, which are
cutting back on support for smaller resellers or dumping them.
"We are not weeding out partners," says Julie Parrish, director of
marketing for 3Com's U.S. sales organization. "We continue to think
that mind share with 30,000 resellers is important."
Don Gulling, president of Verteks Consulting Inc., an Ocala, Fla.-based
reseller, does not dispute that sentiment. 3Com, he says, stands to
win over small resellers. "3Com treats us like a sales all-star," says
Gulling. Of other networking vendors, he says, "If we aren't a
multimillion-dollar producer of their product alone, they don't want to
fool with us."
3Com's Networking Partners receive what the company terms
"universal benefits" (www.3Com.com/partners/index2.html). Those
include sales and technical training, marketing material, and telephone
support during normal business hours. Resellers that meet volume
requirements qualify for education credits.
So, even as takeover rumors continue to swirl, one thing is clear:
3Com remains committed to its resellers.
Five To Watch
3Com, $1.4 billion, Ericsson, Siemens may be interested
Cabletron, $0.3 billion, CEO Craig Benson needs a big partner
Cisco, $2.8 billion, King of IP networking
Lucent, $8.2 billion, Voice giant tapped Ascend
Nortel, $4.4 billion, Voice veteran swallowed Bay Networks
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