3Com dumps US Robotics

3Com confirmed what had been obvious for some time; it cannot compete effectively with Cisco Systems in the market for high-end data networking products. So 3Com announced it is leaving that market and focus instead on three strategic areas: high-speed Internet access for the consumer market (DSL and cable modems); networking equipment for small and medium-sized businesses; and networking provider services.

As part of the major restructuring program, 3Com will reduce its workforce by 25 percent. The company is also selling its USRobotics dial-up modem business to a new joint venture company formed by Taiwan's Accton Technology and Singapore's NatSteel Electronics.

3Com purchased USRobotics in 1997 for what was then a whopping $7.3 billion. The investment quickly turning into a huge fiasco as the dial-up modem market suffered from falling prices, increased competition. It also ran into a technological road block that has thus far prevented modem speeds to increase beyond 56K. In the four years prior to the acquisition, modem speeds



had progressed from 9600 baud to 56K.

''We're going to narrow our focus on markets, products and technologies where we can lead. We're not going to participate in slow-growth markets where we don't have a strong position. This will allow us to do what we do best. We are going to focus on the things that will increase our shareholder value,'' said Bruce Claflin, 3Com president and chief operating officer. Some of the products the company will stop making altogether after June 20 include the PathBuilder, NetBuilder and CoreBuilder wide area and local area networking systems.

3Com made the dramatic announcement the same day it reported one of its strongest financial quarters in three years. Profits totaled $97.4 million, up from $89.7 million a year ago. Sales edged higher to $1.42 billion from $1.41 billion. The restructuring will have a dramatic effect on 3Com’s sales, cutting the company effectively in half. Sales in the current fourth sales will be around $675 million to $750 million and 3Com will have an operating loss of $450 million to $500 million.

Some 1,600 to 2,000 3Com employees will be transferred to the new joint-venture firm. But many are expected to be eliminated when the new owners take control. Another 800 to 1000 workers will be laid off. In all 3Com will spend $200 million to $300 million to finance the restructuring. On a positive note, 3Com said it had agreed to buy Call Technologies, a maker of unified messaging and operational systems and support software products, for about $90 million in cash. Call technologies will be integrated in 3Com’s Comm Works Total Control platforms, which help service providers offer enhanced services over networks that carry voice, data and video.