3Com spins off carrier networking arm

Santa Clara, Calif.-based 3Com Corp. continued its ongoing restructuring with a flurry of recent announcements designed to re-focus the company towards its historical small- and medium-size enterprise base.

Primary among these is the decision to spin off its carrier and service provider networking business into a new wholly owned subsidiary, CommWorks Corp. According to 3Com, CommWorks will focus on building IP networks for network service providers.

3Com also appointed Bruce Claflin to take over the CEO duties Eric Benhamou left behind when he stepped down on January 1. The cash-strapped company then immediately began shedding the first of up to 3,000 employees it plans to let go in an effort to produce US$200 million in savings.

In product news, 3Com took aim at the enterprise market with a new line of SuperStack 3 switches geared to promote the use of Gigabit Ethernet in smaller enterprises.

Mark Fabbi, an analyst with Gartner Group Canada in Toronto, said 3Com’s announcements were made in an effort to stem the bleeding caused by its poorly performing lines.

He added that the creation of CommWorks Corporation was “logical,” considering 3Com’s decision to abandon the large enterprise networking business last spring. That decision was made only months after the company spun out its highly successful Palm computing division.

“Having small and medium business and carrier products in one company didn’t make any sense at all,” Fabbi said. “There was absolutely no synergies between them.”

Fabbi said 3Com’s carrier networks business had been receiving most of its revenue from its Total Control ports, which are in service at many ISPs.

“A good portion of that revenue is coming from dial-based Internet services, and over time that gets smaller and smaller,” he said.

Fabbi said CommWorks has its work cut out to rebuild its business into growing areas. The company faces stiff competition from major players such as Cisco and Lucent. On its wireless side, where it provides equipment for CDMA wireless networks, it competes against giant Texas Instruments.

The incoming Claflin said in a statement that CommWorks will benefit from having the freedom to focus on its core service provider market.

3Com’s announced layoffs are a direct result of the company’s restructuring, Fabbi said.

“If you think about the organization you need to support small- and medium- business-style sales and research and development versus what you need in a more comprehensive telecom provider, they’re very different,” he explained.

Fabbi said he was also impressed with the renewed vigour 3Com seemed to be showing in attacking its historically strong SME business.

“They’re doing very well there, they’re announcing new products, they’re being very aggressive on price,” he said.

Included among 3Com’s new SuperStack 3 switches is a stackable gigabit-over-copper switch for enterprise wiring closets.

The company also announced a new 1000Base-T server card, and has plans to introduce a Web caching device, a Layer-7 switch and a stand-alone firewall box, as well as some Bluetooth-enabled wireless products.

3Com will be in tough to grab market share in its foray into the Web caching and firewall arenas, but Fabbi said its other new products should prove beneficial to improving the company’s traditionally strong small networking business.

“If you look at revenue breakdowns, (3Com’s) systems business, which was the stuff that was really focused on the SME market, was still growing quarter over quarter, year over year,” he said, while the carrier business was the one that took the big hit last quarter.

3Com’s Canadian division can be found at www.3com.ca.