MARLBOROUGH, MASS. - 3Com faces a number of major challenges as it moves to diversify its product portfolio.
In an exclusive interview with Network World at 3Com's new East Coast operations headquarters, company President and CEO Eric Benhamou defended the absence of a core product around which to build an information access infrastructure. He also reiterated the synergy he claims exists between 3Com and US Robotics, the modem giant 3Com acquired two years ago for $7 billion that many analysts are now saying the company should sell.
Benhamou also says quarterly revenue growth in fiscal 2000 will be in the "high single digits" as 3Com looks to reduce dependency on revenue from mature product lines - network interface cards (NIC), modems and hubs - by more than a third.
Many analysts have subsequently lowered their forecasts for the company and downgraded their investment recommendations (NW, June 28, page 16).
"As we finish fiscal 2000, we will have 50% of our revenue from established growth businesses, 25% from emerging very high-growth businesses and only 25% from classical mature products," Benhamou says.
Some analysts think quarterly growth in the high single digits for fiscal 2000 is still overly optimistic.
"I'm actually forecasting flat growth," says one analyst who requested anonymity. "Maybe they'll get there, maybe they can't. We'll have to see."
High-growth businesses
Currently, NICs, modems and hubs account for 39% of 3Com's overall revenue, which in fiscal 1999 was $5.8 billion. The emerging high-growth businesses include LAN telephony, and wireless network access via handheld devices, such as 3Com's wildly popular PalmPilot.
Benhamou consistently mentioned Palm and scenarios involving Palm computing in last week's interview, and said sales of the handheld device will account for $1 billion of 3Com's fiscal year 2000 revenue. Benhamou and other 3Com executives generally decline to detail revenue from specific products or product lines.
Yet Benhamou stopped short of designating Palm, or any other product line, as 3Com's showcase offering.
Some analysts have criticized 3Com for being unfocused by not having a foundation product, the way Cisco has with routers.
"We don't have a centerpiece," Benhamou says. "I don't think we should have a centerpiece. We're really focusing on delivering personalized access to information. Multiple products are used to create that personalized information ac-cess service. I would like to be known for delivering that service. I would not like to be known for any one of these products."
Benhamou declined to comment on recent speculation that 3Com, or any of its business units, is an acquisition target. 3Com's stock has slipped from the low 50s in December to the mid to high 20s, helping to fuel this speculation.
Friday rumors
"Interestingly, these rumors tend to occur most frequently on Fridays and during the week before earnings," Benhamou says. "I'm not drawing any inference from this, but statistically this is very clear, very visible."
One business unit that pops up as an acquisition/divestiture candidate is the carrier business unit, which predominantly is made up of the US Robotics business. Notably, this is also the business unit with the mature, declining-growth modem products.
Strategic fit
Yet Benhamou last week reiterated his stand that the carrier unit is a strategic one for 3Com. Departing again from the previous practice of not discussing revenue by product or business unit, he says carrier products will account for $700 million to $800 million of 3Com's fiscal 2000 revenue.
US Robotics is also the foundation for 3Com's future growth with products that address emerging markets, such as LAN telephony and broadband access.
Acquiring US Robotics "was a very smart move. It is extremely synergistic," Benhamou says. "Because US Robotics, in fact, gave us a way to build up cable modem and [digital subscriber line] expertise. We didn't have any at 3Com. Voice over IP is something that really came about with US Robotics."
"It's very important to understand that today, connectivity has grown into something that's not only delivered to corporations," Benhamou adds, providing his rationale for the US Robotics business and 3Com's changing landscape. "We're increasingly delivering connectivity to small businesses and consumers."
RELATED LINKS
Experts look to the future
An interview with Benhamou, 3Com founder Robert Metcalfe and Web inventor Tim Berners-Lee. Network World, 7/5/99.
3Com to rely less on NICs,modems
Company sees revenue growth in handheld devices, IP telephony and broadband access. Network World, 6/28/99.
3Com stock slides on move away from NICs and modems
Network World Fusion, 6/25/99.
3Com delivers on QoS promises
Company aims to improve service quality across mixed Ethernet and ATM networks. Network World, 6/7/99.
3Com to span Ethernet, ATM nets with QoS
Network World, 4/12/99.
