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Competitors fight for 3Com's discarded customers

The company's decision to dump its corporate networking business orphans thousands of its customers, but rival networking firms are swooping in to fill the void.

3Com's decision to dump its high-end corporate networking business has orphaned thousands of its customers, but rival networking firms are swooping in to fill the void.

When 3Com exited the large corporate market as part of its restructuring, the struggling firm hand-picked Extreme Networks to take over its customers' accounts--and even gave 200 sales staff and engineers to the young networking firm.

Gartner Analyst Mark Fabbi says 3Com's abandoning of the large enterprise market to focus primarily on the small and midsize enterprise market is, in effect, an admission that it cannot successfully compete with Cisco Systems and Nortel Networks in that market.

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But other network equipment makers, including Cisco Systems, Nortel Networks, Lucent Technologies and Foundry Networks, all want a piece of the action. They're offering discounts and trade-in programs and buying full-page newspaper advertisements, all in an effort to capture a portion of the several hundred million dollars 3Com's clients will spend this year to upgrade their networks.

"With 3Com backing out of the market, the sharks are rushing in," said Synergy Research Group analyst Jeremy Duke.

Sales of networking gear to large businesses is the most profitable chunk of the highly competitive corporate networking market, which reached $21.5 billion in revenue last year.

3Com and Extreme have worked to make their products compatible and developed a plan for the customers to move to Extreme, but other networking players will have a good shot at capturing 3Com's clients, analysts say.

"Put yourself in the customers' shoes. They spent $50,000 to $100,000 on 3Com's switches. They'll stop and go, 'what's wrong with this product? Why did I buy it?'" Duke said. "Other players are rushing in with a blanket and warm milk, saying, 'you've been abandoned. We're here for the long term. And this is what we'll do for you.' Some folks are going to take up the offers."

Cisco, which captured 44 percent of corporate networking sales last year, will walk away with half the 3Com clients, predicts analyst Erik Suppiger of Chase Hambrecht & Quist. Extreme will grab about 20 percent to 30 percent with the remaining going to other firms, he said.

Enterasys executives agree.

Enterasys is targeting 3,600 3Com customers who buy high-end equipment and expect they will spend at least $330 million on gear this year and $500 million next year. Enterasys has signed $3 million worth of deals with former 3Com clients, said Garry McGuire, a company executive vice president.

"I think half the customers will go the Cisco route because they just got burned by 3Com and want to play it safe," McGuire said. "The other half are absolutely up for grabs."

UC-Davis, a university in Northern California, is one such customer.

Doug Hartline, the university's director of communication resources, said the school is planning to spend millions of dollars on a networking project next year and was considering 3Com's equipment.

"We're disappointed. We're very happy with 3Com's equipment and were surprised" by their decision to focus on the small and medium-sized networking market, he said. "We will request for proposals to establish a relationship with another vendor."

The Pennsbury School District in Fallsington, Penn., received trade-in offers from Lucent and Cisco on Friday, but school administrators are ignoring them.

"They jumped on me and tried to say 3Com sold me down the river," said Dan DiLorenzo, the school district's information technology director. "But I'm not ready to go with any of those guys now."

But DiLorenzo bought the 3Com equipment almost two years ago and expects the gear to last another five years before he has to replace any. Immediately after 3Com's decision was made, a 3Com representative called and assured him the company will continue to support his company's products.

"It's disheartening. I thought they were making progress and doing fine in this arena," he said. "But I'm sticking with what I have. I'm not planning to jump ship."

When the time comes for him to upgrade his equipment, DiLorenzo is leaning toward Extreme because his 3Com sales representative recently moved to the young networking firm.

But even Extreme chief executive Gordon Stitt admits he can't keep all the 3Com customers. Analysts are predicting the addition of 3Com's sale staff will add $100 million in yearly revenue to Extreme's coffers for its 2001 fiscal year, but Stitt isn't willing to make such bold predictions.

"It's still early to see where it goes," said Stitt, noting that the addition of 200 3Com employees will help. "We acquired people who are familiar with the customer problems and their networks, and we feel we're in a great position to get some of that long-term revenue. Clearly those people are not going to sell zero dollars worth of stuff."

It's smart for the networking firms to chase after 3Com's customers now, Duke said. Their goal is to get recurring business from the companies as they replace old equipment and replace it with newer, faster products every few years or so.

"The strategy is to swap out the 3Com equipment," Duke said. "It's musical chairs, and everyone is going to go for that empty chair. It doesn't matter if it takes two months or 12 months (to sign the deals). At some point, it will pay off."