3Com Launches major plan to reduce and restructure

3Com Corp. (Santa Clara, CA) announced a dramatic restructuring Monday, shedding its lagging high-end networking and modem businesses to concentrate on products for consumers, smaller businesses, and telecommunications carriers. As part of the company's new "strategic focus," it also rolled out a long list of partnerships, an acquisition, and several investments.

Mar 22nd, 2000
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3Com Corp. (Santa Clara, CA) announced a dramatic restructuring Monday, shedding its lagging high-end networking and modem businesses to concentrate on products for consumers, smaller businesses, and telecommunications carriers. As part of the company's new "strategic focus," it also rolled out a long list of partnerships, an acquisition, and several investments.

Explaining the changes, Eric Benhamou, 3Com's chairman and chief executive officer, says, "We're focusing on markets where we have established a leadership position, while making strategic investments in new technologies and partnering with companies that strengthen our offerings. In addition, we're transitioning out of businesses that are no longer strategic to 3Com's future."

The leaner 3Com will focus on high-speed and wireless Internet access equipment for consumers and small and mid-sized businesses as well as products for telecommunications service providers.

In pursuit of its goals, 3Com announced an expansion of its partnership with Copper Mountain Networks Inc., maker of digital subscriber line access products for carriers. The company also will spend about $90 million to acquire Call Technologies, a Virginia-based company that provides integrated messaging services, and $20 million to invest in CAIS Internet, a service provider for hotels and other hospitality businesses that offer travelers high-speed broadband services.

Benhamou also announced the creation of a 3Com funded startup to focus on fiber-based metropolitan area networks (MANs). "We expect MANs to become another important access infrastructure point for delivering IP [Internet Protocol]-based services," he says.

3Com plans to sell its dial-up modem business and PC card business to a new company formed by Taiwan's Accton Technology and Singapore's NatSteel Electronics. The new company will build and sell those products, including those made by U.S. Robotics, which 3Com bought in 1997. 3Com will send customers of its discontinued high-end enterprise equipment lines to an existing partner, Santa Clara-based Extreme Networks.

3Com's restructuring began last fall, when it announced that it would sell a stake in its Palm unit to the public and give the rest to shareholders within six months. At the beginning of the month, 3Com sold 4% of Palm in a highly successful initial public offering. The company plans to spin off the remaining shares to 3Com investors between June and August.

After the reorganization is complete, 3Com will have annual sales of $3 billion, or half its previous level. According to the company, 2,500 to 3,000 of 3Com's 13,000 workers will leave the company, with two-thirds transferring to newly formed companies and partners. The rest will likely lose their jobs. The company expects the changes to be completed in five months.

3Com also reported earnings Monday for the third quarter, ended February 25. Sales of $1.4 billion were flat with the year-ago period. Net income was $97.4 million, or 27 cents, up 9%, after excluding one-time items and results from Palm.

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