3Com – first the strategy, the rest will follow

1999-12-22

When 3Com bought US Robotics in 1997, it was unsure what to do with the PalmPilot product. Rumour has it that the decision was made for the company as 3Com executives found they could not do without the device, which became an essential element of meeting room apparel within a short space of time. Realising it was on to a winner, the company hung on to the Palm product line, a decision which has paid huge dividends for the company. Last week 3Com announced it had filed to sell shares in Palm Computing, in an IPO which is generating great interest across the board. The decision has been seen as good for Palm, but where does it leave 3Com?

Let’s look at 3Com’s current position. The company announced its second quarter results two days ago, seeing a fall in both earnings and revenues of just over 4%. According to the financial analysts, this was largely down to a 20% drop in sales of its networking equipment products and modems. Also, despite beating analysts’ expectations on earnings per share, 3Com warned that third quarter earnings would fall to 24 cents per share, 8 cents below predictions. Observers are using terms like “stumbling,” “struggling” and “challenged.” The sell-off of Palm is seen as a positive move as it will enable 3Com to focus on its core business, but some say that it is a lack of focus in this area which has dogged 3Com from the start.

Despite all this, 3Com do seem to be getting it together. The company has launched its e-networks strategy, in which it positions itself as a provider of core building blocks for the converged voice, video and data markets. This move is not just about networking equipment – applications software and services will also play a big part in the overall picture. The recent $100M stake that the company took in wireless applications company USWeb/CKS, as well as the positioning and feature sets of products like its NBX family, are illustrative of how 3Com is moving forward with this strategy.

3Com is moving away from battles it knows it cannot fight, such as sales of “pure” networking equipment. Instead it is setting its sights on the new frontiers of convergent technologies, applications and services. While this new landscape shows all the signs of offering lucrative opportunities, which the company is perfectly capably of exploiting, it is still very much in the future. It will remain so until bandwidth issues have been resolved, and standards and tools for application communications, security, directory services and management are not only set but also adopted across the technology industries. This presents quite a barrier to be overcome: for 3Com’s sake it had better happen sooner, rather than later.

(First published 22 December 1999)