3Com denies damage to customer relations: But users say it will be difficult to trust the vendor

Despite the customer relations fallout from its recent restructuring, 3Com is confident that business will continue as usual. But IT managers are being advised to "look to the channel" for future networking solutions, according to analysts.

3Com alienated scores of customers by abruptly cancelling three products as part of a March restructuring that saw the company exit the large-enterprise network equipment market.

Although 3Com is offering a migration path to Extreme Networks' gear, the move angered many customers who abandoned by the company and duped into buying products just weeks before they were discontinued.

And Tere Bracco, analyst at CurrentAnalysis, said 3Com's handling of the large enterprise customer base will impact sales of the company's lower-end wiring closet LAN switches, such as the popular SuperStack line.

"It has discounted the connection that the high-end enterprise customers had between their high-end devices and their low end. The company will find that when the CoreBuilder customers get a new vendor for their high-end devices, they will use that same vendor when it comes time to replace the low end."

But 3Com is not fazed with this problem, Michelle Kinna, marketing director at 3Com Australia said.

"There has been no indication of customers looking elsewhere for their switches and hubs, the areas where 3Com is successful," Kinna said.

"It will be up to us to make sure product sets and service continue to earn [customers'] business," she added.

However, Geoff Johnson, program director at Gartner, agreed that 3Com faces a challenge from customers looking for an end-to-end solution. "Customers are looking for an enterprise solution. It is about pulling pieces together and sourcing solutions over the enterprise."

Johnson advised end users to "look to your channel suppliers for solutions".

"Users should now look to their channel providers for end-to-end solutions in the wake of the restructure."

Users say it will be difficult to trust 3Com now and are reluctant to do business with the company again.

Jack Gammons, LAN/WAN analyst at St Vincent's Hospital, wishes 3Com could have handled its exit a little more delicately.

"Just because you're not winning a particular market doesn't mean you just cut it off," he said.

"I could see phase-out a little better than just cutting it off. They left me hanging out to dry."

Vendors exiting unfruitful markets usually phase out products over several months and give customers at least that much advance notice, analysts say. Eric Hindin, an analyst with The Yankee Group, says 3Com's abrupt method, which caught most users off-guard, may signal the beginning of the end for the company.

Hindin says, "Wall Street may give 3Com credit for being no-nonsense, but corporate America will be a little less forgiving. Two or three years from now it could be a business school study in how not to handle customer relations."

However, 3Com said it really didn't have a choice.

"What would be the alternative to what we did?" asked corporate spokesman Brian Johnson, who declined requests for an interview with company president Bruce Claflin.

And Kinna said 3Com deliberately "hadn't spent energy in the previous six months [before the restructure announcement] on the high-end products anyway".

3Com's Johnson said the company does not feel it has irreparably damaged its reputation or credibility with customers. Also, 3Com does not expect any repercussions from cutting off its CoreBuilder, PathBuilder and NetBuilder customers.

Johnson chuckled when asked if 3Com feels it can recover from the strong negative customer reaction to its exit from the large-enterprise market.

"Yes, we do feel we can recover because we're now focusing on markets and technologies where we're already successful," Johnson said, referring to the consumer, small and mid-size business and service provider arenas. Damage to end-user relations will be minimal, he added, because the discontinued products were the only ones sold directly to customers - 95 per cent of 3Com's other products are sold indirectly.

But Gartner's Johnson said, 3Com may even have trouble in that arena.

"It will be a challenge to preserve its channel relationship with channel partners potentially abandoning 3Com," Johnson said.

Nonetheless, customers of those resellers may be watching the tension between 3Com and its large-enterprise base unfold, analysts said.

"One of 3Com's new initiatives is to sell visitor networking gear to hotels," notes Yankee Group's Hindin. "If you're a hotel using 3Com gear, are you going to put any eggs in the 3Com basket as you implement new visitor networking initiatives? I think not."

3Com's Johnson insists the company had the interests of customers in mind when it killed the large-enterprise products. But 3Com also had its bottom line to think about.

New CFO appointed

By Clare Haney

3Com announced recently that the company has hired a new chief financial officer.

Michael Rescoe will have responsibility for all the networking equipment maker's financial issues in his new role as company CFO and senior vice president, finance and planning, 3Com officials said.

Rescoe, previously employed as CFO at utility PG&E, will report directly to 3Com chairman and chief executive officer Eric Benhamou.

3Com's previous CFO - Chris Paisley - is leaving the company to join Santa Clara University's faculty as a teacher. Paisley will stay on at 3Com before taking up his university duties. He joined the company as CFO in September 1985 and has seen 3Com's annual sales operations grow from around $85 million to close to $10.3 billion, said the company.

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