In a cash deal valued at US$100 million, 3Com Corp. announced last week that it has sold selected assets of its telecom equipment business to UTStarcom Inc., a broadband and wireless carrier network equipment company.
3Com said it will now focus exclusively on the enterprise market and plans to expand its enterprise lineup with higher end data and voice equipment for medium-sized and large enterprises. Nick Tidd, managing director of 3Com Canada in Toronto, said 3Com has placed more emphasis on providing networking solutions to the enterprise since about March 2000.
"Upon the completion of the sale, 3Com will be a dedicated enterprise networking company that is totally focused on meeting the needs of enterprise customers," he said. "And for CommWorks to be more successful they need to scale up the breadth of their product offerings as the carriers look to demand solutions that, quite frankly, aren’t in their current portfolio. So that’s why the UTStarcom transition is the right move."
Under the terms of the sale, UTStarcom will acquire patents and intellectual property rights related to CommWorks’ products, plus all equipment, inventory, and current contracts. However, 3Com has licensed some of the intellectual property that remains key to its core business, Tidd said.
"The bottom line, I think, is that 3Com wasn’t making much headway into the carrier side and probably didn’t expect things to change," said Dan McLean, director, enterprise network services research at IDC Canada Ltd. in Toronto. "3Com is clearly a company whose legacy and success exits with the enterprise, so clearly it is trying to retain a stronger focus on its core business."
Hong Lu, president and CEO of UTStarcom in Alameda, Calif., said there is virtually no product overlap between his company and CommWorks. "Because [CommWorks’] product and service line is complementary [to ours] it will almost double the market opportunity through customers and geographic diversification," he said.
CommWorks’ lineup of products includes code division multiple access (CDMA) 2000 packet data serving nodes (PDSN), class 4 softswitches, media gateways, and remote access servers (RAS). Lu said UTStarcom plans to cross-sell products as there is virtually no product overlap between the two companies, and the firm intends to leverage CommWorks’ blue chip clients.
UTStarcom will also retain CommWorks’ global sales and support organization, and its core team of service professionals, engineers and sales and marketing forces. Tidd said many employees who deal directly with CommWorks’ clients would join UTStarcom’s team to enable a smooth transition.
Mike Sophie, CFO and vice-president of finance at UTStarcom, said the company will double its available market from about US$2.3 billion to about US$4.5 billion in 2003 and in 2006, from about US$6.2 billion to US$10.7 billion.
He said UTStarcom expects to pull in US$20 to US$30 million in revenue in each quarter of 2003 from CommWorks’ products and about US$30 to US$35 million each quarter in 2004.
Right now, 17 of the top 20 service providers in the world are UTStarcom customers, Lu said, including Toronto-based Bell Canada and Edmonton-based Telus Corp.
In addition, Lu said this acquisition was a good opportunity for UTStarcom to establish a worldwide presence, adding that his company already has a strong market in Southeast Asia, and Latin America, whereas CommWorks is strong in North America, Europe and Australia. McLean agreed.
"UT Starcom, although it is U.S.-based, seems to be doing a great deal of business in Asia, so the CommWorks piece at least brings some resource in North America if not some key contacts with North America-based customers," he said.