Analysts: 3Com CEO must focus on Huawei

An abrupt CEO change at 3Com should not affect the company's immediate operations, its joint venture with Huawei or it customer base, analysts and customers say. Long term, though, the company faces big questions: How long can it scrape by in markets dominated by Cisco? And where will it find growth?

Last week 3Com CEO Scott Murray stepped down from the job he took just seven months ago, citing the extensive travel required to help manage the 3Com/Huawei partnership in China. Replacing Murray is 3Com veteran and former venture capitalist Edgar Masri.

Murray became 3Com's CEO in January after former CEO Bruce Claflin announced his retirement plans earlier that month. Murray came from Modus Media International, a provider of hosted supply chain management services based in Westwood, Mass., where he had been CEO.

Masri is a 15-year veteran at 3Com, where he led the company's former Network Systems Business Unit and served as president of the company's venture funding arm before joining Matrix Partners as a venture capitalist in 2000.

"Masri has more credentials in technology vs. Murray's financial background," says Long Jiang, an analyst with UBS, in a report on the executive change. "Given Masri's lack of experience as CEO, it remains to be seen how he can ensure stability of the legacy 3Com's revenue base and channel relationships while also dealing with restructuring and the [joint venture] negotiation."

The joint venture is key to 3Com's position as an enterprise data networking company, because the company's core 8800 and 7700 Ethernet switch lines, as well as its 6000 series WAN routers, are developed largely by Huawei and are delivered to customers via the joint venture with 3Com. Last year, 3Com took a majority ownership of the joint venture with Huawei, increasing its stake to 51%. 3Com says it is seeking to expand its ownership of the joint venture in the future.

"It is critical that 3com ensures Huawei's continued commitment in this partnership because of Huawei's key role as a resale channel behind [the joint venture's] recent momentum," Long adds. Some 3Com users say the executive shift is inconsequential as long as the products from its joint venture continue to receive high levels of support.

"They're still providing us with a good product and good service," says Bob Dwyer, a network analyst with St. Bernard's Hospital in Chicago, which uses a 3Com 7700 switch in the LAN core, and more than 20 SuperStack switches in its wiring closets. "When that stops happening, we'll have an issue."

Dwyer says the quality and scale of 3Com's Ethernet switch products have improved noticeably over the past several years since 3Com began offering gear from its joint venture.

Keeping up relations with its reseller and integration partners to keep customers like Dwyer happy will be another important task for Masri - maybe even more crucial than managing the joint venture, other industry watchers say.

"I think they're trying to figure out what to do with their business," says Zeus Kerravala, an analyst with Yankee Group. "The joint venture did a good job of helping to round out the product portfolio, but their problem right now isn't product, it's channel."

The issue with 3Com resellers and integrators is that the company is stuck between two tiers of product delivery. One faction of resellers focuses on small businesses, where 3Com's traditional, homegrown stackable switches and NBX VoIP systems are sold; the other group is companies that sell 3Com's enterprise offerings, such as the 7700 and 8800 switches, supplied by the joint venture, and its high-end VoIP system - the VCX. Add the alternate channel structure for 3Com's TippingPoint division, and the picture becomes more confusing.

"You're probably not going to hear very much from 3Com until they figure out how to fix the channel," Kerravala says.

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