Eric Benhamou, the relaxed chief executive of 3Com Corp, the networking product supplier, is forever saying that the only way to stay ahead in networking, and to ensure access to the latest technology, is to make acquisitions, and lots of them. But even so, regardless of its strong balance sheet and share price, few people predicted its massive $6.6bn agreed takeover of US Robotics, announced late February. The US Robotics deal has little to do with technology and a lot to do with size and market share. 3Com believes that the top networking suppliers need to be able to supply products across the board, from the home, at one end, to corporate switches at the other. From this point of view, US Robotics was the perfect fit: it is the largest supplier of modems, a market in which 3Com had no significant presence, and has been increasingly successful in selling its hubs into telecommunications companies and Internet service providers. Here, 3Com had similar technology but less of a market presence. The deal provides the platform for further synergy. 3Com believes that more and more network routing intelligence will be pushed to the edge, leaving the central parts of the network to carry out high speed switching. In corporate networks, this means edge switches and Ethernet network adapters. In the home, this means modems.
Largest in the world
The combined company will have revenues, which, allowing for the fast growth of both companies, will near $6bn this year. That means 3Com should overtake Cisco to become the world’s largest networking products outfit. But Cisco is on an acquisition spree and a high growth curve of its own and may hold 3Com off. Following the completion of the merger (CI No 3,110), the company will reorganize its business around three self-contained units. The enterprise systems business unit will design, market, manufacture and sell enterprise products including hubs, switches, routers and network management software, and will focus its efforts on the enterprise market. The carrier systems business unit will design, market, manufacture and sell carrier class communications systems targeting network service providers. The client access business unit will design, market, manufacture and sell client access products for local and wide area networks through reseller channels into all four served markets of enterprise, carrier, small business and consumer. The company expects to take charges in the range of $325m and $375m in the quarter when the merger is completed, according to a filing with the Securities and Exchange Commission earlier this week. Completion is expected in June. Meanwhile, Bob Finocchio, president of 3Com Systems, is to quit the company ‘for personal reasons.’ He will continue with 3Com in a strategic counsel role and complete his transition out of the company following completion of its fiscal year, which ends May 31.
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