The reduction, when completed, is expected to be a major contribution to 3Com’s return to profitability. The full reduction will occur over several quarters.
Today’s action is the latest step 3Com is taking in a two-fold process to return to profitability. First, 3Com is implementing a cost reduction program, announced in March 2001, targeted to deliver ongoing annual savings of US$1 billion. Second, it is reorganizing its business units to become more tightly focused on 3Com’s core competencies and move them closer to its customers.
As part of its bold plan to become profitable in fiscal year 2002, 3Com initiated a cost reduction program in December 2000 focused on four areas:
Reducing discretionary spending
Reducing employment costs
Lowering product costs
More effective use of plant, property and equipment.
Through the cost reduction program, 3Com will reduce its workforce from approximately 10,000 to 7,000. The reduction in force will be implemented broadly across most of the company’s operations. 3Com also expects to realize substantial improvements in efficiency from general and administrative-related activities. It has already achieved sizeable reductions in discretionary expenses and from discontinuing certain unprofitable products including its consumer Internet appliances, Audrey and Kerbango. Additionally, 3Com is actively evaluating further cost-savings opportunities in the areas of plant, property and equipment, as well as lowering costs for product design.
This announcement is a necessary step in our plan to restore profitability, said Bruce Claflin, 3Com chief executive officer. Our cost efforts are more important than ever, given the softness we have seen in demand, both in past quarters as well as the current quarter. Despite this slowdown, it is our intention to return to profitability as quickly as possible while positioning the company for profitable growth.
3Com’s New Business Structure Focuses on Strengths
3Com’s cost reduction measures support the new business organization that 3Com announced on April 23. At that time, 3Com announced its will have three operating units effective at the beginning of its fiscal year on June 4.
3Com CommWorks Corporation, created as a wholly-owned subsidiary in December 2000 – Access infrastructures and IP services platforms for network service providers.
3Com Business Connectivity Company – high-volume, high-performance connectivity products for desktop, mobile and server PCs that are sold through OEMs, distributors and other channel partners. Today, these 3Com offerings include market-leading Gigabit Ethernet access and wireless access products.
3Com Business Networks Company – market-leading Ethernet LAN switching, wireless infrastructure and networked telephony solutions for business of all sizes sold through 3Com’s traditional channels of worldwide resellers as well as emerging service provider channels.
The operating units will draw upon shared corporate services including finance, marketing, corporate services and legal. At the beginning of the fiscal year, 3Com’s executive committee will consist of Bruce Claflin, chief executive officer; Mike Rescoe, chief financial officer; Mark Michael, senior vice president, general counsel; Gwen McDonald, interim senior vice president of corporate services; Dennis Connors, president of 3Com Business Connectivity Company; John McClelland, president of 3Com Business Networks Company, Irfan Ali, president of CommWorks Corporation, and Jan Soderstrom, senior vice president of worldwide marketing and brand management.
Each independent unit will be smaller and more agile, able to better serve its customers and become more competitive, said Claflin. They will have the opportunity to pursue more aggressive strategies and more quickly deliver competitive products for their customers. Each unit will be able to pursue strategic partnerships. Finally, each unit will have greater transparency around business and financial performance. The reorganization puts the responsibility for the business in the hands of the people on the front lines, where 3Com is closest to its customers, said Claflin.
3Com’s mission remains unchanged: to deliver radically simple and feature-rich solutions to businesses of all sizes which allows them to expect more from their network and achieve more with their business. 3Com does this by delivering intuitive networks that are easy to own, install and manage, based on technology leadership in the areas of network telephony, wireless, web solutions, and Gigabit Ethernet. 3Com’s CommWorks delivers advanced value-added products to Carriers and Service Providers focused on VoIP and CDMA wireless solutions.
