3Com in the hot seat
By Wylie Wong and Ben Heskett
Staff Writers, CNET NEWS.COM
If 3Com had a dollar for every merger rumor it has been
associated with, it would price itself out of the range of potential
Over the past eight months, the buzz on Wall Street suggests that any
number of telecommunications behemoths could acquire the struggling networking firm.
International networking player Siemens is the latest to say it has no
interest in acquiring 3Com.
Chief Eric Benhamou insists he won't let the rumors distract him. Instead,
he has focused his energy on refining the business strategy for a company
he's led for nine years.
And he's making some serious changes, moving 3Com's investments away from
analog modems and mobile networking cards to newer, growing markets in home networking, Internet telephony, broadband, and wireless technology.
3Com rolled out trials this week for its latest version of the PalmPilot handheld device, the Palm VII, which features a wireless connection.
In a recent interview with CNET News.com, Benhamou discussed the central
role the PalmPilot has to
his company's future, and why he thinks his investment strategy will turn
Given the recent financial struggles at 3Com, there is a lot of
speculation about your company's future. What lies ahead?
Our mission is to connect people and organizations to information, but we
want to do it in a way that is innovative, simple, and reliable. The
product that illustrates this the best is the product people keep in the
palm of their hands. When we look at Palm, we think it conveys and captures
the innovation for simplicity and reliability. But obviously, the rest of
the infrastructure also should be there to support that, so this does not
mean that 3Com is just a Palm company.
We're the only [company] that not only lives in the
[network] infrastructure, but we live in the contact between the
user and the network. We are the only one who has connected users
physically through their PCs, through NICs and modems, and now through Palm
devices. Palm is intimately related to telephones, to network management, to
infrastructure. Palm is a networking play. This is what the soul of the
company is about. And you are going to see this more and more in how we
choose to position the company.
The picture you are painting revolves around the Palm, but the product
generates less than 10 percent of your revenue.
Palm is to us what Java is to Sun, a
technology which enables a new form of computing. Sun does not have a lot
of revenue derived from Java, but Java is embedded into many Sun products.
In the meantime, Sun continues to sell workstations, servers, and storage
devices. So this is not the whole company. We help people broaden their
horizons, [but it] does not mean that we do not sell switches,
routers, access concentrators, and network management devices.
It sounds like you've given up the fight against your classic
competitors, such as Cisco and Nortel, and have chosen to tie your future
to Palm's success while they sell equipment to communications carriers. Is
You're misunderstanding this a little bit, because you think, "Well, you're
going to build everything around Palm." No, I was just using it as an
example of how intelligence has migrated to the periphery.
Carriers are customers of ours, but we don't focus on the core
infrastructure. All the moves made by the Nortels, Lucents, Nokias, Ericssons, and Ciscos have really focused on that. I
understand why, because there's big bucks there. But our business is really
focused on the network, from the Palm all the way to the edge of the public
network, but not beyond that.
So, it doesn't really matter how many trillions of dollars are spent there.
In the past, it was blurred, but I made it very clear what the scope of
3Com was. So when people say, "You can't compete against Nortel and
Lucent," there is a presumption that we want to compete with these people,
and we don't.
Who do you compete with?
We compete with Cisco in the enterprise infrastructure. We compete with a
portion of Nortel, their small business [products]. We compete with
Microsoft because we enable other
device vendors for Palm. We compete with Intel. We compete with a whole raft of
companies who build cable, digital subscriber line (DSL), and analog modems.
Cisco, Nortel, and others concentrate on the core of networking, and you
operate outside the core. You're the next step to the user. Is that what
makes the company attractive?
The talk of attractiveness as an acquisition candidate? I don't comment on
rumors. I'm happy to explain our strategy, but I'm not going to feed the
frenzy of rumors. Every Friday, there is a new one. If I had started to
comment on the first one, then I would spend my time doing that and I
couldn't run the company in the meantime.
It sounds like Microsoft is an increasing competitor to your vision of
what the user wants and how you plan on delivering that through the
This business has three components: a device business; a platform business,
which is software that you license to others; and the service/portal
business. We compete with Microsoft on the platform business.
We are convinced that you need an environment that is optimized for
handhelds and that environment is not Windows CE. Microsoft thinks that
they have to make big strides in the direction of simplicity. Bill
[Gates] talks about this a lot. Of course, he is a prisoner of
architecture, the always-valued Windows look and feel. We are not a
prisoner of the past, we did not build an OS for PCs, so we could take a
clean slate and build something optimized for that.
As the rest of 3Com is concerned, Microsoft is in fact a close ally.
Microsoft chose to partner with 3Com as it's primary home networking
partner because we focus on simplicity and reliability. It's normal that
Microsoft would look to us for the hardware infrastructure. We are also
partnering with them on many enterprise plays, small businesses, but also
large enterprises as well as voice-over IP for ISPs.
NEXT: 3Com in transition