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Commentary: 3Com stung by switch from large enterprises

3Com is blaming its troubles on structural changes in the worldwide telecommunications sector that are adversely affecting all networking products makers.

By Marina Mayes, Gartner Analyst

3Com is blaming its troubles on structural changes in the worldwide telecommunications sector that are adversely affecting all networking products makers.

But even though 3Com's competitors--including Cisco Systems and Nortel Networks--have also experienced declining demand for their network products, they are not reporting such dramatically declining revenues.

What is different about 3Com? For one thing, earlier this year, the company announced a restructuring plan that left large enterprises with the impression that 3Com is no longer interested in their business. That perception--which is only partially accurate, since the company still sells products for that market, such as chassis switches--has hurt the company's bottom line.

The company has definitely narrowed the range of its product offerings. It no longer competes in the market for big enterprise switches, concentrating instead on its home territory: switching products for small to midsize enterprises. The result is that large enterprises no longer put 3Com on their short lists when considering companies.

See news story:
3Com shares sink lower after profit warning
At the same time, the small to midsize enterprise market for network interface cards (NICs)--a traditional strength for 3Com--is undergoing extreme structural changes. NICs are now commodity items, and though sales are still good, the market is close to saturation, and profit margins are shrinking fast.

3Com is moving to address at least some of those problems. The company's recent acquisition of Alteon WebSystems' Gigabit Ethernet NIC business from Nortel means it will be able to offer a line of low-cost, copper-based Ethernet NICs. That line should prove attractive to small businesses--but the results are not likely to have a positive impact on 3Com's revenue until the first quarter of 2001 at the earliest.

The bottom line is that 3Com is facing some troubling issues that must be addressed. Gartner has been predicting for some time that a consolidation is coming in the networking products industry--and 3Com might just turn out to be an acquisition target of one of its more successful competitors.

(For related commentary on Gigabit Ethernet technology, see TechRepublic.com--free registration required.)

Entire contents, Copyright ? 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.