3Com struggles mount, layoffs ahead

Last week 3Com announced it would cut an undetermined number of jobs by the end of February. The goal of the layoff strategy is to save the company around $US200 million per year.

          Last week 3Com announced it would cut an undetermined number of jobs by the end of February. The goal of the layoff strategy is to save the company around $US200 million per year.

          A company spokeswoman says it is too early to know how many positions will be cut, or if the cuts would affect 3Com's customer support or production operations.

          "We expect to reduce costs in a variety of areas, and that includes employees," the spokeswoman says. "It also includes discretionary costs as well as cutting production costs by saving money in plant, property and equipment spending."

          The news of possible 3Com workforce cuts was hinted at by CEO Bruce Claflin in a December 21 earnings conference call with investors, in which he stated "we intend to make changes to the structure and operation of our company that will allow us to achieve profitable growth."

          Claflin took over as CEO of 3Com on January 1 with the charge of making the company profitable after three consecutive quarters in the red. He replaced 10-year 3Com head Eric Benhamou as CEO, who is now the company's chairman of the board.

          The news of layoffs at 3Com comes a month after the company announced it would spin off its Carrier Network Business (CNB) as a separate, wholly owned subsidiary called CommWorks. The creation of CommWorks, also a cost-cutting measure, came after the CNB unit's revenue dropped 43% from the first quarter and 30% from the first quarter of last year. CNB products included the Total Control platform of remote access and broadband concentrators as well as service provisioning software for carriers. Claflin attributed the restructuring to recent economic and market turbulence, as well as slowed spending from large telecom companies.

          3Com will absorb $US40 million to $US60 million in charges this quarter as it reorganises the company.

          A report by online financial news site www.on24.com last Monday stating that the company would reduce its workforce by 20% was "only speculative," the spokeswoman says, reinforcing that there are no firm numbers yet on how many cuts will be made.

          "We're taking these decisions very seriously," the spokeswoman says. "Right now, we're in the process of determining where savings will be achieved. That will determine how many job reductions there will be." 3Com, which employs 10,597 people, expects to have decisions on workforce reductions ready by the end of ruary.

          "I'm not so surprised," of the decision to cut workers, says Gray Hancock of Current Analysis. Citing a recent 12-month low in 3Com's stock price (around $10 as of January 16), as well as its poor second quarter, something like this was in order, Hancock adds.

          "Personnel is one of the major cost factors in any company's workforce. Realigning, reorganising and refocusing on key products will be key," he says. "If all goes well, I think they'll be more successful than they have been. . . . I don't see [3Com's restructuring] as a negative thing."

          News of 3Com's layoff plans comes just a week after Nortel Networks, a competitor in some of the carrier and enterprise network markets 3Com serves, announced it would eliminate 4000 jobs.

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