3Com steers away from NICs, modems

3Com's recent announcement to de-emphasise sales of its network interface cards (NICs) and modems is not a sudden transformation for the company which has been investing in new technology areas, said a 3Com official.

NICs and modems accounted for 45 per cent of 3Com's worldwide fiscal fourth quarter 1999 revenue, but the company wants to rely less on these products, and is aiming to derive 75 per cent of its revenue from its other offerings, including switches, remote access gear, and handheld devices.

"As we enter fiscal 2000, rapid growth of emerging new businesses such as handheld computers, Internet Protocol telephony , and broadband access, couple with success of our systems solutions, are transforming the growth profile of the company," said Eric Benhamou, 3Com chairman and chief executive officer.

"This is not a sudden transformation for 3Com ... for a number of years we have been investing heavily in new technology areas, such as handheld computing and wireless technologies," said Gerhard Rumpff, Asia-Pacific director of marketing, 3Com.

"The recent announcement is the culmination of this process, and a statement of our intent to continue bringing innovative technologies to enterprises, small business, consumers, and telecommunication carriers," said Rumpff.

While unable to comment specifically on the company's long term financial targets, he revealed that 3Com expects its fiscal year 2000 revenues to move further away from the NICs and modems. "Given our focus on high growth markets, you could expect the share from slower growth markets to continue to decline over the next few years," he added.

The latest announcement is a good move because it allows 3Com to focus on higher margin product lines, said Sandra Ng, associate director, communications research at IDC.

"This also makes sense as more lower-priced players such as D-Link and Accton/SMC, among others, ate into 3Com's marketshare because users don't see the need to go for 'premium' brands for such commodity products," Ng explained.

She believes 3Com's resolution to refocus is a good move, but stressed that it must be implemented well to compete head-on with the likes of Cisco Systems in the higher end, and Hewlett-Packard in the handheld device segment.

Due to users' sensitivity towards higher priced products, 3Com also lost marketshare in the last 12 to 18 months, to vendors who were able to offer their products at a lower cost, Ng added.

According to IDC figures, 3Com's revenue share in the LAN (local area network) market for Asia-Pacific (excluding Japan) dipped to 18 per cent in the first quarter 1999 from 24 per cent in the same quarter last year.

Rumpff voiced "disappointment" with IDC's figures for the region's LAN market, adding that the numbers, "Do not show the full picture."

"The LAN market, particularly the hub and NIC sectors, is a mature market with limited long-term growth potential," he said. "3Com, and the networking industry as a whole, is shifting focus towards higher-growth market opportunities in key segments such as wireless, handheld, and broadband access."

"We are devoting considerable resources toward developing strength in these and other high-growth sectors, and have already established our leadership with products such as the Palm connected organiser and the AirConnect wireless range."

The new announcement will not steer 3Com's focus away from small and medium enterprises (SMEs), which Rumpff noted, is the fastest growing market segment. The company launched its "more connected" network strategy last year, designed to capture SME and consumer networking markets.

"We will continue to focus on this sector and introduce new technologies to this space -- such as wireless, broadband access and LAN telephony products -- to give SME's a competitive edge in today's global marketplace," he said.

3Com will also be initiating new ways of reaching SMEs, he noted, adding that the company will be working with telecommunication operators to provide total networking and connectivity offerings.

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