3Com Reveals Bold Restructuring Plans

SAN MATEO (03/22/2000) - 3Com Corp., as part of aggressive restructuring plans revealed at its third-quarter analyst meeting on Monday, effectively said it will exit the high-end enterprise networking equipment market.

The series of strategy moves include discontinuing the CoreBuilder LAN switch line, as well as the PathBuilder and NetBuilder WAN core product lines, according to company executives. 3Com also said it is selling its analog modem business to a new company.

3Com's announcement is the latest in a series of restructuring moves by enterprise networking equipment providers. Last month Lucent announced plans to spin off slow growth enterprise business units, and Cabletron split into four independent operating companies in an effort to improve its competitive position.

"The growth in the large enterprise space has slowed down considerably while growth in the service provider space has taken off," said John Armstrong, chief networking analyst at Dataquest, in San Jose, Calif. "3Com's shift in focus and of resources reflects that change."

"For 3Com in particular, the large enterprise [LAN switch] market was not an area of high growth, compared to the WAN space for service providers or the opportunities in wireless data or IP telephony." Armstrong said. "The enterprise networking market is still big but it has matured and won't experience huge growth rates compared to other areas."

To soften the impact of discontinuing the core switch line on June 30, 3Com CEO Eric Benhamou said the company plans to "transition" its CoreBuilder line by expanding its alliance with Extreme Networks, giving customers a migration path to Extreme's Summit and BlackDiamond switches. The PathBuilder and NetBuilder lines will be handed off to Motorola by transferring some assets, technology, and employees to Motorola. Customers of all the discontinued product lines will receive service and support for up to five years, according to the company.

"We've been working closely with customers and with our user group to highlight the direction we are taking and to get their feedback. Overall the customers have been pleased with the direction we're taking," said Nigel Oakley, vice president of customer marketing at 3Com. "This has been a difficult decision for us. The agreement we have with Extreme is one of the best options we could take, considering their reputation with our customers and the way they are viewed in the industry."

In addition to exiting the LAN/WAN enterprise space, the company will sell its analog modem business, which it gained through its U.S. Robotics acquisition in 1997, to a new company 3Com will form with Accton and NatSteel Electronics. The new company will research, design, market, and sell Internet access products, including PC Card modems and U.S. Robotics-branded analog modems, according to 3Com.

Benhamou said 3Com will now turn its effort and resources to consumers, small and midsize businesses, and network service providers. And part of 3Com's overhaul will include a renewed focus on four high-growth areas of technology, Benhamou said. These market areas include IP telephony, broadband access, wireless access, and Web-based products and services.

For the small and medium business space, 3Com said in early 2001 it plans to integrate Inktomi's Traffic Server Engine software and Internet firewall technology from SonicWall into its SuperStack products. The inclusion of Inktomi's traffic engine will give faster access to Web page downloads and enhanced services such as media streaming and content filtering. SonicWall's technology will provide additional security features. In addition, 3Com announced its Switch 4000 line, expected in July, for LAN backbone switching in small and midsize businesses.

In an effort to expand its presence in the service provider market, the company announced plans to acquire Call Technologies, which makes unified messaging platforms for service providers. The deal, valued at approximately $90 million, will bolster the IP services layer of 3Com's CommWorks architecture for service providers, according to 3Com.

The company also unveiled an expansion of its partnership with Copper Mountain Networks, which makes DSL access concentrators for the service provider market.

3Com said it plans to integrate Copper Mountain's DSLAM (Digital Subscriber Line Access Multiplexer) technology, including the CopperEdge 200 and CopperEdge 150 concentrators, into its CommWorks architecture for deployment in service providers' central offices.

"The service provider space is the most strategic area for 3Com and that is where they need to put the most resources and effort," Armstrong said. "That area is experiencing the fastest growth in the marketplace."

Another analyst, however, said 3Com does not stand much hope of competing in a market dominated by established players.

"I can't figure out why they insist on staying in the service provider and carrier space," said Tere Bracco, principal analyst for enterprise infrastructure at Current Analysis, in Dallas. "They face a lot of competition in that area and 3Com has never been a premium player in that market. And they let go of their large enterprise WAN products, which could have been a springboard into the service provider market."

"I think if they get out of the service provider and carrier market soon enough and concentrate on the home and small and medium enterprise networking space they will prevail," Bracco said. "The longer they extend energy and development dollars to be a player in the service provider and carrier market, the worse off they will be. I don't see how they can hang on in those markets."

3Com Corp., in Santa Clara, Calif., is at www.3com.com.

Cathleen Moore is an InfoWorld reporter.

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