3Com led a stock slide across the networking industry yesterday, after Intel announced an aggressive attack on on the workgroup Lan market.
The products announced (see yesterday's story) included a low cost hub, the Express 10/100 Stackable Hub, and a single-chip Fast Ethernet processor that can live on a PC motherboard. The latter claims to slash in half the cost of upgrading to 100Mbps Ethernet for workgroups.
Analysts saw the move, Intel's most aggressive yet in the networking field, as most dangerous to 3Com, whose shares fell $2.875 to $26.375, while its proposed merger partner, US Robotics, lost $5.69 to close at just over $45.
However, while Intel's shares gained slightly, up $1.25 to $138.375, all its would-be networking competitors saw their stocks depressed. Cisco, the most active technology stock of the day on the Nasdaq exchange, lost just over $1 to close at $47.31, even though Intel's workgroup devices are not aimed directly at Cisco's more corporate product line. This showed the massive impact that all players feel Intel could have if it continues to be serious about the networking market, said Wall Street watchers.
Also suffering were Bay Networks, down 62.5 cents to $17, and Cabletron Systems, down $1.25 to $30.125, both of whom operate in the workgroup hub and Fast Ethernet sectors.
Announcing its 82558 Fast Ethernet on a chip, which is currently being offered in limited samples to OEMs, Intel said it believes the product will boost the percentage of PCs that ship with built-in networking capabilities on the motherboard. Currently, only 10 per cent of PCs have these features, but Intel vice president Mark Christiansen said this figure could rise to 40 per cent within two years.
The release of the device indicates how Intel's approach to this market is directly opposite to that of the more established vendors - and may be more dangerous to them for that reason, according to analysts at the Gartner Group. Intel executives at the launch made it clear that the primary motivation for the company is to boost demand for more powerful PC processors by encouraging users to adopt high performance technologies such as Fast Ethernet at an early stage. This makes it imperative for Intel to offer network devices at a low cost, while its rivals are worrying about protecting their margins from shrinking even further in the cut-throat Lan sector.
3Com has already been rocked by Intel once this year. In February the chip giant dropped its prices for Fast Ethernet network adapters by 40 per cent, forcing 3Com to modify its pricing almost overnight. John Armstrong, an analyst at Dataquest, now believes 3Com is in a dangerous position, being squeezed by Cisco at the high end and Intel at the low.
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