It has not been a great year for 3Com. The company's first-quarter sales figures have dropped, its partnership with Siemens has fallen apart, and it is becoming better known for its PalmPilot personal digital assistant than for its core products of routers, hubs and switches.
What is frustrating for chief executive Eric Benhamou is that 3Com is still very much a player, according to market watchers. The company sells more analogue modems, network interface cards and local area network (Lan) hubs than just about anyone, and shifts a large number of Lan switches and routers.
However, in the last two years, rival Cisco Systems has grown its revenues by 89 per cent to $12.2 billion (£7.6bn), compared with 3Com's 6.5 per cent. Without Palm, 3Com would see flat or slightly lower revenues this year, say analysts.
3Com's rivals are scrambling to exploit the voice and data convergence revolution. Nortel has bought Bay Networks, Lucent has gobbled up Ascend, and Cisco is acquiring like mad. All of which leaves 3Com looking like a wallflower.
Benhamou disagrees. "We are in the strongest position we have been in for years," he said in an exclusive interview with Computing. Yes, PalmPilot will be split off next year, but this is to reassure customers that 3Com is focused on its core networking business, he says.
"There is a risk we are being overshadowed by the Palm," he says. "The public persona of 3Com is increasingly in terms of the Palm, and our networking competitors are using this against us."
Yet despite its popularity, the PalmPilot represents only about 10 per cent of 3Com's revenues, having grown from one per cent three years ago.
"We never felt we were losing focus. But if enough people believe this perception, it becomes reality. By cutting PalmPilot loose, we are telling everyone that we are a networking company first and foremost," he said.
This year, 3Com has implemented a number of strategies that will change the way the company operates, says Benhamou. "Businesses are no longer defined by their products, but by their business models and strategies. The model we have for 3Com will define the company."
This includes paring its reseller channel so it can sell more products direct to customers, offering end-to-end networking advice through its recently formed consulting services division, and improving operational efficiency with its newly installed SAP R/3 enterprise resource planning system.
However, none of these address 3Com's biggest problem: its lack of a major voice technology partner in a market increasingly focused on voice and data convergence. The firm's much-publicised joint venture with Siemens to develop Lan telephony products earlier this year has been abandoned.
Benhamou insists 3Com is still sitting pretty. "We can work with Alcatel, Siemens or Nortel, we don't need a voice partner," he says. "We are also working closely with Microsoft, which has been in on most of the voice deals we have signed," he said. This includes US retailer Home Depot, which has installed 3Com's voice and data Lan products in all of its stores and will soon add virtual private network capability.
However, Charles Rutstein, an analyst at Forrester Research, is convinced that a breakup of the company is the best route to success, rather than new products or spin-offs. The lack of synergy between 3Com's product lines is stopping the company from realising the value of its assets, he says.
"3Com holds about a third of the carrier access gear market," he said.
"European telcos Ericsson, Siemens and Nokia will bid for 3Com's carrier access and high-end enterprise business, but only if it divests itself into three."
A split would also help 3Com address the lack of immediate income from the voice and data convergence market, says Rutstein. Only 10 per cent of Global 2000 companies plan to move voice traffic onto their Lans within two years, according to Forrester.
Cutting the Palm division loose will pave the way for consumer technology giants such as Sony and Toshiba to muscle in on Palm's 60 per cent share of the palm computing market, says Rutstein.
Benhamou, however, is confident 3Com already has the recipe for success.
"When I took over in 1990, 3Com had lost its way and its speed," he says.
"Now it has the critical mass and the products to offer customers end-to-end networking. None of our competitors can do that."
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