By Andrew Lawrence
For the past three years, local area networking equipment supplier 3Com Corp has enjoyed a run of phenomenal success, turning in superb results and grabbing market share in every sector in which it competes – network interface cards, switches and routers. But if the first few months of 1997 are anything to go by, 3Com faces a tough time ahead. Although the 3Com chief executive officer Eric Benhamou argues that his company will emerge in an even stronger position, analysts are divided.
The challenges to 3Com are coming both at the low-end of its product line – in the near-commodity market for network interface cards, hubs and low-end switches; and at the high-end, where the daily scuffles to sell big switches and routers to bigger customers is escalating into a war based on competing and non- compatible technological architectures. Most ominously, 3Com’s direct opponents are among the most powerful in the computer industry: Intel Corp and Cisco Systems Inc – with yet another, Compaq Computer Corp, in the shadows. The threat from the low-end comes from Intel, which is in the process of completing its $72m acquisition of the Denmark-based, but British-owned Case Technology Ltd, a subsidiary of the Anite Group Plc. Intel intends to sell Case hubs and switches through its channels, and exploit the opportunity to supply board-level and even on-chip networking technology developed by Case. In addition, Intel has slashed the prices for its network interface cards by up to 40%, sparking off a price war. Analysts say Intel wants to speed up the network to ensure that demand for high-powered processors continues. 3Com has acknowledged the threat by slashing its prices – a pre-emptive strike reminiscent of Intel’s own strategy to protect its core microprocessor business. This move will cost some $30m, resulting in lower margins for 3Com in its next, third quarter results. In a recent briefing, Benhamou made it clear that if Intel’s strategy succeeds, it would come at the expense of 3Com, which dominates the market. Compaq is emerging as another threat to 3Com. Last April, Compaq bought Network Inc and Thomas Conrad Corp, and announced that it intended to launch a string of products based on these companies’ midrange hubs, cards and switches. To date, Compaq has made little impact outside of its plans to make cards for its computers – but Compaq executives recently warned that a host of new products are nearing launch. 3Com’s strategy for defending its low-end market, apart from price cuts, is in the form of improving function – such as more intelligence and better protocol support. This dovetails into its strategy to hold off the threat from its biggest competitor in networking – Cisco. Cisco and 3Com are head-to-head in the market for high-end routers and switches, the source of 60% of 3Com’s $2.3bn sales and almost all of Cisco’s $4.1bn. For much of February, 3Com executives were on the road, attempting to explain the complexities of Fast IP, its new architecture for speeding up and improving the quality of enterprise and wide area networking. Fast IP is 3Com’s method of dealing with the big networking problems which all the suppliers are grappling with: how to run Internet protocol traffic, which traditionally hops across networks or relatively slow routers, at the speed of fast switched networks; and how to scale it so that it can run fast across large networks and even wide area networks. 3Com’s chief technology officer John Hart argues that Cisco’s solution, known as tag switching, is not acceptable: It works. But it doesn’t look like it [the overall speed of traffic] is getting faster. It’s getting slower. He also argues that tag switching involves installing too many routers. 3Com’s solution involves taking some of the routing information and putting it out to the desktop. The result is that some of the middle parts of the network, where the so-called ‘layer 3′ routing takes place, can be simplified using fast, hardware layer 2’ switching. According to 3Com,
throughput could be five to 10 times faster. Ron Sege, 3Com vice president for the company’s integrated systems division, makes it clear that he is willing to sacrifice sales of 3Com’s routers to establish faster, switch-based networks which also exclude Cisco routers. I want Cisco out of the network. They are my competitor. 3Com’s vision differs from other approaches in that it involves upgrading the network interface cards and the ‘edge switch’ devices. The necessary software will be available free from 3Com. It’s the Netscape model. We’ll get it started for free, but we probably won’t give everything away free, explains Hart. To cover the wide area network, 3Com has joined forces with IBM Corp and is throwing its weight behind a rival to Cisco’s tag switching technology, Cascade’s IP Navigator which is another method of sending IP packets across the Internet or intranet using as little routing as possible. 3Com argues that Cascade Communications Corp’s approach complements the 3Com local area network architecture. Analysts are increasingly viewing this as a core architectural battle which may decide who will thrive in the next generation of networking.
But it is a difficult call: none of the technologies have yet been proven in real situations. On one side are several big equipment suppliers, including the likes of 3Com, Cascade, Bay Networks Inc, IBM Corp as well as Ipsilon Networks Inc, all of which have endorsed similar approaches. On the other, is Cisco with its tag switching along with a gigantic market share. The two approaches can co-exist for a time, but at some point, say the analysts, the two must collide. This article first appeared in the March 1997 edition of Computer Business Review.