Recovery with Chinese knowhow

meg93zhen

Stuart Kennedy | July 17, 2007

the world according to | Edgar Masri

CO-FOUNDED by ethernet legend Robert Metcalfe back in the 1970s, 3Com was a big brand in networking when current networking giant Cisco was just a startup in short pants.

3Com boss Edgar Masri will try to woo back high enterprise
But 3Com fell on hard times this century, losing money and market share through the dotcom crash and beyond, abandoning the high-end router market in 2000 and making weird acquisitions such as the failed Kerbango internet radio venture.

Through its wilderness years 3Com lost money, presence and staff, with employee numbers dwindling to a few thousand from a high of about 12,000.

However, new chief executive Edgar Masri is determined to put the firm back on the map with an aggressive growth plan both in Australia and globally.

Masri is no stranger to 3Com, having previously been on board in a range of roles from 1985 to 2000.

Masri's 3Com wants to get back into the enterprise networking market through the recent acquisition of the H3C joint venture with Chinese communications firm Huawei.

This gives 3Com a range of cheap, Chinese-developed high-performance switching gear and talented, low-wage development workforce, although it must adapt those products for more stringent Western markets.

Masri has his work cut out while 3Com tries to woo back the high enterprise market it threw away in 2000, rebuilding support services, brand awareness and relationships.

Back in the 1990s, 3Com was one of the top network infrastructure brands in Australia, but during the early 2000s the brand contracted locally to the level of a museum relic. Meanwhile, Cisco built massive market share and brand awareness and the Junipers and other networking vendors tagged along. What's your recovery plan for 3Com?

I was with 3Com from the mid-1980s until 2000. While I don't want to take too much credit for it, the last quarter that 3Com was profitable in 2000 was when I left and the first quarter that 3Com ended up being profitable was my first quarter with the company.

I recognise that we had six years of challenges.

Part of the problem was external factors, because the whole market was collapsing, but as you pointed out we struggled when others survived and thrived.

The reason we're back on track is a focus on our core strengths and our core emerging strengths.

The joint venture with Huawei, which we went on to acquire, was one of the main reasons we've been able to boast about three quarters of positive operating income, and the reason why we can say we're now a clear second player with north of a billion dollars in revenue a year and, therefore, with the critical mass to play on a worldwide basis.

What were the main things 3Com got out of the Huawei buyout?

3Com realised that to be taken seriously it had to go back and build a rich, if not one of the richest, product lines in the world for the enterprise.

That was the rationale behind the joint venture.

In order to be competitive one had to leverage the emerging strengths and the prolific talent available in China and in Asia generally - we're also leveraging India.

With this joint venture we gained access to a talent pool that is, on average, one fifth of the cost per person that an equivalent engineer would costs us in the US and we also got access to a very powerful powerful partner in Huawei. Why the acquisition? The initial terms of the joint venture implied that after three years the joint venture would be available for purchase by either of the two parties.

Huawei continues to set up these joint ventures as a way for a private company to monetise some of their valuable but not strategic assets.

They are not strategic because Huawei all along has stated its intent to be a successful company in the carrier business.

Recently, in the carrier business the competition, particularly in terms of wireless, has been very stiff and demanding in terms of working capital.

So Huawei wanted to sell at the end of three years and we believed that owning the asset was a critical element of re-establishing ourselves as a serious player in enterprise and gaining full access to the product line with clarity about the ownership.

What are the challenges in fusing the Chinese Huawei culture with the US 3Com culture?

Because the success and the critical mass has been primarily in the China business over the past couple of years, you realise we have engineers who are looking at the business through the prism of China.

The main challenge, which we're overcoming, is to get them to look at the world through the prism of a globally competitive networking landscape.

The engineers in China have been very keen to go beyond providing me-too products. They know how to do it.

What sort of H3C-sourced technologies are we likely to see in Australia over the next year or so?

At first you are going to see high-quality, low-cost infrastructure products but then very quickly you're going to be looking at integrated voice over internet protocol products, more and more network monitoring capability that blends into the gear, as opposed to being a costly add-on and, third, you are going to see open source capabilities that Australia has been keen to leverage.

You have just announced an initial public offer for TippingPoint, where 3Com retains the majority shareholding. What is the rationale behind offloading TippingPoint and roughly how long until 3Com completely divests TippingPoint?

The main reason for divesting TippingPoint is to focus all of our energy on the networking market and to do so while leveraging TippingPoint but also allowing it to blossom and grow to its full potential.

But is the plan to completely divest TippingPoint over time?

Yes, that's the strategic intent, what I cannot say is the exact timing.

We are a secure, converged networking company, so our networking products will be secure and converged but the same way we don't need to own all aspects of the voice technology we feel we don't need to own all the pieces of the security.

Which brand will be dominant in the new 3Com? Will it be H3C or 3Com?

At the small and medium business end where 3Com has always been strong and well known it's the 3Com brand.

At the higher level, specifically with system integrators and service providers, H3C is the source of the product and we will be using H3C as the brand.

For the mid-range we are in the midst of our branding activity.

There's a way to get the best of both worlds from both brands but that is still a work in progress.

When are we likely to see the 10 gigabit ethernet market commoditise enough so that it starts to make sense for smaller enterprises to go 10G at the core and 1G on the desktop?

We're seeing it happen the same way people started using 100Mb ethernet 10 years ago. We believe that with our high-quality, low-cost offerings we will be a driver of the commoditisation of 10G at the core and we intend to be a leading player in making a gigabit to the desktop a reality.

What's the timing on 10G core as a mass-market enterprise product?

When more than 20 per cent of customers adopt it, in late 2008 or early 2009.

Will much of your focus in Australia be on the small and medium business market?

We're strong in Australia in the small and medium business market, so you should expect a lot of our energy and effort over coming quarters to be focused on regaining a strong foothold in the enterprise market.

Will you first target verticals and dynamic medium enterprises?

Peter Chai, 3Com vice-president and South Pacific general manager: We will focus on three or four verticals - education, government, local government and retail.

Secondly we're hiring more direct-touch sales people to work in those verticals and building better after-sales support here.

We will put on two people per capital city and grow from there.

guigua

3COM当年抛弃的不仅是中国市场，而且是人心。我2003年初去硅谷出差，SUN/CISCO等办公区前的停车场全是员工车辆，而3COM的空空荡荡，好在后来被华为看上了。

chubbycat

3COM has moved out of silicon valley