Can old-timer 3Com parlay its big investment in Chinese R&D into a number two spot in the networking market? That's certainly its plan, says Mike Ansley, the company's EMEA general manager and VP.
Late last year, the company announced that it was buying out its partner Huawei from their joint venture, Huawei-3Com (H3C), and then this year said that it planned to sell off a slice of TippingPoint, the security appliance developer that it purchased back in 2005. Ansley says that the latter is intended to refill 3Com's war-chest, depleted as it was by the former, and adds that although 3Com has reported losses in recent quarters, they're only on paper.
"We lost $93m, but $91m was a paper loss from amortisation," he says. "Last quarter we had a trading profit, though there's still acquisition costs to write off. We had a cash-pile close to $1 billion - we funded the H3C acquisition from that and debt. We still have $400m in cash."
That cash-pile was one of the few good things that came out of 3Com's otherwise dreadful experience during the recession of 2000-2001. Back in the 1990s, 3Com was huge - it was one of the pioneers of Ethernet and had grown so fat that it could buy up the rights to rename San Francisco's Candlestick Park sports stadium as 3Com Park.
However, when the recession hit, its management decided on a wholesale retreat, abandoning entire product lines and surrendering or selling off the family silver. Much of it went for peanuts, but fortunately for the company now, there were a few exceptions, with the biggest being Palm.
The sell-offs turned 3Com into a technology also-ran, and left many of its customers feeling betrayed. The 2003 formation of H3C merely served to demonstrate its new-found reliance on others, where once it used to innovate.
"I think we lost our way on technology - 3Com used to be the price-performance leader when I competed with them," says Ansley, who joined 3Com some months ago from WiMax start-up Redline Communications, having previously spent eight years at Cisco.
He adds, "We've got it back with H3C - you will be very impressed what you get for your dollar with 3Com now. The change of management at 3Com has been fundamental, but the turnaround is very recent - we are right at the inflection point."
The changes are at all levels - development, technology, distribution - and yes, customer service, or so Ansley claims.
The first three of those are all tied in with H3C, and with the big shift in 3Com's identity which could see it becoming a much more Chinese company. The pace of the integration with its former joint venture has been amazing, says Ansley, and once the absorption of H3C is complete the new company will have its R&D, its production and most of its 6400 staff all based in the People's Republic.
It also gives 3Com an extra distribution channel via its former partner, he adds: "Huawei is our biggest customer - it buys switches and routers from H3C.
"Huawei gives us reach in China and the developing world. We have a covenant with them that they won't compete with us for a period of time. Huawei is service provider-focused, it's really about wireless, especially 3G. For example, all the Ukrainian wireless networks run on Huawei - they don't publicise that, I only know it from watching the industry."
3Com hopes to use the lower cost-base associated with being in China to undercut its rivals, and that's not just Cisco - it's a range of other companies, all of whom now target the SMB and enterprise markets that 3Com used to sell into and wants to regain.
"The likes of D-Link, Linksys and Netgear, companies we thought were consumer, are now moving into SMB," says Ansley. "The telephony vendors also have more SMB sales. In the enterprise the lion's share is Cisco, but we also see HP, for example.
"H3C has products that compete with Extreme and Foundry, we just have to get out there and promote them. A significant percentage of the product-set that my team sells is from H3C - we're now in a position where we're being entertained, and we weren't getting that before."
Aiming at the alienated
He adds that the other big area for improvement is customer service. It seems that the company is well aware just how wrong its former management got this, and it is keen to make amends, for example by bringing its support staff back in-house and on-shore.
"We are actually in-housing our support - the EMEA call centre will be in the UK," Ansley says. "No-one else does that. It's a matter of customer intimacy - we want the customer to know they're talking to someone with a vested interest. We have done things to alienate some customers, and we have to win back our right to sell to them."
It's all part of a recognition that networking is becoming a commodity, he says, and that price-performance is of increasing importance.
"3Com has historically been the best price-performance in the industry, so we should give IT managers more budget to spend," he claims. "Companies like choice, and we are truly standards-based. The value in IT today is in the applications, not the network or the PCs."
Is that a viable business? Certainly, he says: "Companies can still do well in a commodity market - there's a phenomenal opportunity for a company that can do SMB and enterprise, end to end.
"This industry is ripe for a viable second vendor, and we are in a position to be that. I couldn't have said that a year ago. We've had three quarters of operating profit and we had positive cashflow last year. We've got a very strong hand and we just have to play it well."
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