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Sun 19 Dec 2004 04:00 AM

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Back in the Ring

After quitting the enterprise networking market in 2000, 3Com has jumped back into the fray with the latest, fastest switch technology and its Chinese joint venture. Global sales boss Pax Andersson tells Elizabeth Drachman his strategy for swallowing rival Cisco.

Profile|~||~||~|They are the unsung heroes of technology. They rarely bask in glow of the press. They are not flashy, nor are they famous. Some call them the plumbers of technology, but they are much more than that. Without them, no office can function, and 3Com has set out to prove that businesses cannot function without its particular brand of plumbing.

Two years ago, the US-based networking-equipment maker was on the brink of extinction. It started a major diet, shedding kilos of excess fat and has emerged as a lean enterprise networking machine. Part of that regime was adding a healthy dose of business from emerging markets such as the Middle East and Asia.

After 18 months of making losses, the 1,000-plus employee firm is finally seeing a light at the end of the restructuring tunnel.

With the one-year anniversary of its progressive joint venture with Chinese networking giant Huawei under its belt and the launch of its latest family of networking switches, 3Com is prepping for battle against industry leader Cisco.

At the unveiling last month of its new series of switches -—dubbed the 8800 — 3Com reported on its successful joint venture and its strategy to win back customers. The four-day conference was held in China, the site of one of its most important business partnerships to date.

At its height, 3Com — founded by the creator of the ethernet connection, Bob Metcalfe, 25 years ago — it was a US$5.7 billion company with a product range as diverse as they come.

“3Com was rolling in the money back then,” says the head of the global international division, Pax Andersson. “At the highest point, we ruled the business at that time. We were prospering, so we acquired everything that moved in the industry. We owned Palm, we built bigger routers and switches, we built consumer products, we went into ATM switches. Very few companies — if any — have made money on their ATM developments. So I think we ran out of managing bandwidth. Many of our products were ahead of the game and we started to lose money.”

And so began the painful process of picking and choosing amongst winning and losing product lines.

“We were stretched too thin,” says Andersson, “and after the internet bubble burst, we went into a deep decline, straight down.

“Oddly enough,” he adds, “right before the bubble burst, we had sold off Palm, which gave us enough money to maintain and stabilise while we restructured.”

At the end of the process, what was left was a much smaller company with a mandate to focus on doing one thing, and doing it well: making networking equipment technologically better than Cisco’s and sell it cheaper.

“That’s the bottom line here. The 8800 is better, faster, cheaper,” says industry analyst Keith Humphreys of Eurolan Research. “It’s not very sexy I’m afraid, but hugely important.”

The 8800 represents the backbone of 3Com’s full frontal attack on Cisco’s business. The 8800 series will cost up to 25% less than competitive gear, specifically Cisco’s Catalyst 6500 switch series.

The switch, which comes in three sizes, has one major difference from a Cisco switch: it is built with open standards as opposed to proprietary parts that lock customers into one contract with one company.

“Our equipment is open standards; it’s part of our new ‘exercise choice’ mantra,” says Andersson. “Here’s the network, now you look for best-of-breed applications. We are convinced that customers are moving more and more to that. They want to choose their own software and applications.”

The 8800 connects a company headquarters, for example, to its branches and mobile workers. The switch offers load balancing when one part of the network is being heavily used and another is relatively unused. It also has backups in place in case of network interruptions such as when a network goes down after a construction worker whacks a line. And perhaps most important of all, the 8800 comes with a built-in security apparatus.

The security feature differs from Cisco’s in that it is built in to the main box and is applicable to all add-ons. “The way Cisco deals with security is a nightmare,” says Andersson. “They have security measures at every single entry point into the network. 3Com’s is built into the main switch, the 8800.”3Com partnered with US-based Crossbeam, a company that produces the platform on which all applications and software can operate. Crossbeam makes it possible for the 8800 to be a simpler, more generic switch.

“We have high hopes for this product,” says Andersson. “With the 8800 today, we now can fight with Cisco for any customer.”It won’t be an easy battle. Not only is 3Com going up against Cisco, which today has a comfortable 60-80% of the market, but there are others as well. US-based Juniper for one.

“I think they need to watch out for Juniper,” says Eurolan’s Humphreys. “Juniper offers the same system, open standards as well. But Juniper is coming out with a box that is more difficult, more high-end, with more intellectual property so it can’t be duplicated by the Chinese and produced cheaper. But I do think 3com’s got the advantage by working with the guys who are doing the copying, because it ain’t gonna get copied… you won’t make as much money obviously though.”

Those “copiers” are 3Com’s newest partners and represent 3Com’s smartest move.

The joint venture that created Huawei-3Com has boosted sales in a big way. The Chinese division now accounts for some 90% of sales.

It may also signal the end of 3Com as a US company. Industry insiders are predicting a merger within a year or so. Most believe it will be the Chinese firm buying out the American one.

“Maybe we’ll see an acquisition one way or another,” says Humphreys. “I think Huawei will buy 3Com in the long term, and what’s wrong with that? 3Com could get good shareholder value by doing that.”

Other conference attendees mimicked the same sentiment and wondered how things would change. “I’ve worked for an American company for a long time now. I wouldn’t mind working for a Chinese one. It would be interesting to see how management styles would change though,” said one France-based 3Com executive.

For now, industry observers are content to adopting a wait-and-see attitude if 3Com can continue to pull up its socks before placing any bets on future acquisitions.

As for the Middle East region, the two-year restructuring, which was partly why Andersson was brought in from IBM, meant many product lines were abandoned, which didn’t make 3Com many friends. It meant the shutting down of many representative offices and partnerships in the Middle East region. “When I started two years ago, we were in 13 countries in the Middle East, but we were doing mediocre business in all of them so I said to cut it down to two or three and go deeper.”

Those markets that Andersson deemed worthy of keeping a focus on were the United Arab Emirates and the Kingdom of Saudi Arabia.

“We are going after a few specific projects right now in the Middle East. I am not ready to announce what they are because I don’t want my competitors to know,” says Andersson, “but our business in the region is growing very good, so I want to put in more people there in sales and support.

“We’ve had great success in the Marina project in Dubai, where’s there’s now 40 more buildings going up. That means a couple of million dollars to us. There’s also some residential stuff coming up and for us that means broadband boxes. That box leads somewhere, so that should be a 3Com box it comes to. So we are working with some of the developers in Dubai to do this.”

3Com has been selected to provide networking solutions to the Dubai Marina, one of the many flagship projects within the region that deploys 3Com technology, including the Aspire Sports Academy in Qatar, Bahrain’s Ministry of Commerce’s e-government project, and the new Al Nahar media development in Lebanon. “We have also started to be stronger in Saudi Arabia. We now opened a new legal entity there. We are not shouting too much about it since we are an American company and there are political sensitivities,” says Andersson. “One company we are definitely going after is Aramco. We are clearly going after their business. They have historically been connected to Alcatel. So we are putting a team together just to serve them and get their business. They spend US$20 million a year just on networking kit. I would like to have a few of those millions.”

“We want to concentrate on Saudi, UAE, Bahrain. Only in a year’s time will I go into Kuwait, and much later, Iraq and Libya.”

3Com’s regional manager, Wael Fakharany, believes the new 8800 will easily strike a chord with Middle Eastern companies. “The Middle East is actually a prime market for the 8800, because customers here have expressed strong frustration with the currently available competitive solutions that employ proprietary protocols, force vendor lock-in and are overpriced,” he says. “Given the number of greenfield residential and business construction projects that are in development across the region, we’re anticipating strong demand for the Switch 8800 platform.”

Andersson and his global sales team will focus on beating Cisco in all markets, and on all courts. And while it may be a tough order, Andersson is undaunted. “This is the game plan. These are the stepping stones. We were just in the talking phase with Huawei two years ago and now with this joint venture, I can’t put my finger on anything that we haven’t accomplished.

“In a flat worldwide market, we intend to grow,” he says. “We can only do that by taking market share away from Cisco. I like to say we are like fish 200 metres down and if I’m down there I don’t care how high the waves are above. I’m hungry, so I eat the guy next to me.”||**||

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