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Customer impact low from 3Com sale, analysts say

Customer impact low from 3Com sale, analysts say

Huawei big-ticket 3Com buy may reposition ailing vendor for competition

Customers should feel little impact from the US$2 billion acquisition of 3Com by Huawei Technologies and Bain Capital, analysts say.

If anything, they should be comforted that they are not dealing with a company distracted by shareholder scrutiny. 3Com will be taken private under the deal.

"3Com customers should stand [their ground]," says Steve Schuchart, principal analyst for Enterprise Network Systems at Current Analysis.

"If you've already made the choice to go with 3Com equipment this doesn't give me any [reason] to say you should stop buying 3Com. If anything, this may distract 3Com from its financial difficulties."

"I don't think there should be any short term concern for the customer," said Zeus Kerravala, an analyst at The Yankee Group. "If anything the customer should look at this as a bit of upside because it will give 3Com some resources and freedom to do things maybe they couldn't do."

But Kerravala raised another question of which he believes customers should be aware.

"I would certainly raise the question as to what does the Huawei ownership mean?" he said. "Private equity firms are pretty quick to cut off parts of the business that aren't profitable. Does that mean any kind of product line rationalisation? If I were the customers I'd ask questions around that."

3Com went through a wrenching product rationalisation seven years ago when it abruptly dropped its large enterprise core switch line due to little success in that market. The strategy left some customers bitter as they suddenly had vital and expensive equipment with a very short lifespan.

If Bain and Huawei have designs on growing 3Com's enterprise business, they'll have to deal with those skeletons, Schuchart says.

"3Com pulled out of the enterprise at one time and they'd like to tell you that that was so long ago, nobody remembers or nobody cares," Schuchart said.

"Well, people do remember. I think that there's something of a distrust of 3Com because of it, and it's difficult to get around. They've never really recovered from that. What's really unclear to me is what Bain and Huawei can really do to restore enterprise confidence in 3Com."

Both Schuchart and Kerravala were surprised that anyone would buy 3Com given the company's compromised presence in the market and financial challenges since 2000. Of all of Cisco's enterprise competitors, 3Com seemed the most sickly.

But Huawei has strategic plans for the company, according to Chris Silva of Forrester Research.

"Huawei is intent on addressing the North American enterprise market [with 3Com]," Silva said. "For 3Com customers, it means] a little bit more muscle behind their primary vendor."

For 3Com, it means becoming more enterprise-focused and "out of the SMB pigeonhole" in North America, Silva said.

One former and potentially future competitor is unfazed. Extreme Networks, a company 3Com steered its large enterprise LAN switch customers to when it abandoned that market, seems to think it will be business as usual after the deal.

"Extreme is focused on serving organisations that require enterprise class features to solve complex networking challenges," said Paul Hooper, Extreme's chief marketing officer. "Consequently, as we are positioned more to complement than compete. We do not run into 3Com on a daily basis."

Nonetheless, the deal could breathe some enterprise life back into 3Com years after the company disengaged itself from a large part of that market.

"If they want any kind of hope of turning this around and becoming more of a real enterprise vendor, then this is probably something that had to happen," Kerravala says.

"This company has got to think long term," he says. "They've got to think about how they go acquire a large enterprise channel. Maybe that includes buying some business and not being profitable for a little bit. It's a good way to re-establish yourself in a market where you haven't been established in in a long time."


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