The Enchanted 3Com Room (Under New Management)

CEO Robert Mao has been running 3Com (Nasdaq: COMS  ) for a scant two months, but he has already formed a vision for the future of his company. A hundred days? That’s for slackers!

Mao (no relation to the former Chinese leader) noted that his company owns about as much market share in data networking equipment as Cisco Systems (Nasdaq: CSCO  ) does -- in China. The trick now is to extend that position of strength to other markets. Using China as a remote home base, Mao hopes to repeat that success story across the world. One key initiative is to give more responsibility to regional managers, to ensure that 3Com can meet local needs on a global scale. Where have I heard that strategy before?

This new deal is off to a somewhat inauspicious start, though. 3Com reported a fourth-quarter net loss of $167 million, or $0.41 per share, on $321 million in revenue. That includes a writedown of goodwill of about $158 million related to the 2005 acquisition of security expert TippingPoint, in a review that was triggered by recent share price movements. Without that charge and certain other inconvenient cost items, 3Com actually saw a $0.09 profit per share, nine times the $0.01 per share reported a year ago.

So the question now is whether Mao can build a decent market share in other developing regions like Eastern Europe and Latin America, and steal some sales in North America from regionally strong competitors like Nortel Networks (NYSE: NT  ) , F5 Networks (Nasdaq: FFIV  ) , and cheeky upstart Blue Coat Systems (Nasdaq: BCSI  ) . The company pins its domestic hopes on fresh blood at the top of the North American division, while Latin America is developing swimmingly already.

Mao comes to this job from two years at the helm of 3Com's Chinese operations and about 11 years of similar posts for Nortel and Alcatel (NYSE: ALU  ) , so it's natural that he wants to extend the operating models he developed to other parts of the company. Given that China has been such a success story, it's easy to imagine that these tactics could work elsewhere, too. Stay tuned as 3Com tries to climb out of the penny-stock cellar where it has spent the better part of the last seven years.

Further Foolishness:

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure can't wait for the Olympics -- there just ain't enough women's handball and octuple coxswain rowing on TV!


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  • Report this Comment On June 25, 2008, at 8:12 PM, Alaejos wrote:

    3Com doesn't compete against BlueCoat and F5 Networks so the assertion that 3Com can "steal some sales" from these two companies is incorrect and far from the mark. Both BlueCoat and F5 Networks compete in the Application Delivery Network sector and their products are the result of significant R&D efforts and clear understanding by the IT marketplace to the benefits they provide.

    Changing management won't help if 3Com doesn't have the right products, and the company doesn't. As a former reseller of 3Com, I wouldn't buy any of their products due to the number of hardware failures we experience despite lifetime warranties. Therefore as investor, I expect 3Com to continue to experience losses while they honour these warranties. Existing customers are not going to replace failing 3Com equipment with new 3Com equipment and given the mature market that 3Com operates in, customers are already buying elsewhere.

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