The phrase "new global strategy for accelerated growth" sounds handsomely impressive, and was used by 3Com president Eric Benhamou at a press conference he held in the US last Tuesday. Behind it, however, hides large scale failure. Benhamou is not alone - he joins a respectable group of leading international communications manufacturers who gambled on the wrong strategy and the wrong technologies and brought their companies to the edge of the abyss.
Motorola is an outstanding example. The company could not decide on the right cellular technology in good time, and found itself losing its seniority in the sector to Nokia and Ericsson. In this instance, Motorola leaders paid with their heads and found themselves outside the company. Now, the huge failure of the Iridium satellite cellular project that Motorola initiated and financed landed bitterly on the company ten days ago.
The announcement by 3Com opened with four areas being found for growth levels to become some of the highest in the communications sector. Towards the end of the announcement, in an inconspicuous place, mention is made that the company will gradually exit from technologies defined as having lower growth rates, such as Analog, WAN, LAN, ATM, and modems. The first two areas were defined by 3Com as the company's future spheres. The ATM products development center operated in Israel, after 3Com acquired NiceCom for that purpose.
The exit from the analog modem field is a public announcement of the failure of the merger with US Robotics, and of 3Com and Benhamou's strategic concept. Sometimes, however luck plays a hand: together with US Robotics, 3Com acquired a marginal development of Palm Pilot. Following the greatly publicized failure of Apple Newton, even US Robotics owners did not regard the Palm Pilot development as an asset and did not take pains to keep it for themselves.
It should be said to Benhamou's credit that when he identified the huge potential of the Palm Pilot, he changed the company's priorities, placing it at the head of the list, and allocating to it enormous development resources.
Today, one can almost certainly say that the Palm saved Benhamou and 3Com from collapse. The company reported increased revenues and profits this week, the source of which lies in the Palm Pilot.
At the beginning of the month, 3Com set up a separate company for the Palm Pilot, and issued 5% of it on Nasdaq with great success. 3Com's holding in Palm Pilotamounts to $29 billion, whereas its own value is estimated at $22 billion. This infers that without Palm, 3Com has a negative value of $7 billion, and constitutes a very sharp message by the market to Benhamou.
The announcement of a change in strategy proves that the message has been digested. The question is why investors should now have faith in someone who in the past failed in his strategic assessments? The four areas that 3Com plans to put its efforts into are: broadband access, IP network telephony solutions, wireless access and Internet-based solutions. The target audience is the private consumer, commercial businesses market, and communications providers.
To strengthen the move, 3Com invested in a number of companies with leading technologies in these areas, and signed several cooperation agreements.
About 2,700 3Com employees worldwide are expected to terminate their work. According to the announcement, most of them will be transferred to working in one of the companies with which cooperation agreements have been signed. In Israel, 170 out of the 220 employees have been laid-off, including development center manager Yaki Luzon, and 3Com has no job solutions to offer them. It is reasonable to assume, however, that in today's high-tech market, the majority will even profit from the move by finding more remunerative work. High-tech engineers and technicians are currently a very rare and expensive commodity in Israel.
Fifty employees will continue to work at the small development center, which is being transformed from ATM to the new sphere, VBN, into which 3Com has entered. Heading the operation will be Amir Eldad, currently 3Com USA vice president. The company's marketing company in Israel remains intact. From now on, it will concentrate on activities in the new markets as defined by the company.
Employees at the development center in Israel have known for a long time that development of ATM has no future and is liable to be shut down. The move did not surprise them or the local managers, and some already started making contacts to find alternative employment prior to the official announcement.
Nevertheless, the marketing company was taken by surprise at 3Com's retreat from the corporate and inter-organizational communications networks market. This is where the huge battle with Cisco and other competitors took place, even in the local market, and this is where the company invested its major efforts so far.
3Com's cable modem is being tested by cable companies Tevel and Matav. It is still unclear when the cable companies will be granted the permit to provide high-speed Internet, or whether they will choose 3Com modems.
The ADSL modem was late to arrive on the Israeli market. When Bezeq published the tender for ADSL equipment, 3Com was not yet in the picture.
3Com could have a future in Israel with its IP telephony exchanges, although it is reasonable to assume that other manufacturers of exchanges in Israel, such as Telrad, ECI, Siemens, Ericsson and Comdial are making great efforts in this direction. Most of the exchanges demonstrated to customers in Europe are currently installed in Israel. Some customers, among them government ministries refuse to allow 3Com to remove them in order to use them in demonstrations to other customers. At the moment, there is no inventory or distributor in Israel.
The system has not yet received Ministry of Communications approval and cannot be sold in Israel. Since the system operates on 2.4 Ghz, which does not require approval, it is reasonable to assume that marketing will begin shortly.
Published by Israel's Business Arena on 27 March, 2000