Analysts applaud 3Com, US Robotics merger

The new 3Com and US Robotics merger is being seen as a major change to the networking industry's competitive landscape. Commentators say the two complementary product lines give the merged entity formidable offerings across the broad range of local and wide area network technologies.

The new 3Com and US Robotics merger is being seen as a major change to the networking industry's competitive landscape. Commentators say the two complementary product lines give the merged entity formidable offerings across the broad range of local and wide area network technologies.

The companies are likely to avoid the problems of the merger two and a half years ago of SynOptics Communications. and Wellfleet Communications into Bay Networks, according to Esmeralda Silva, senior analyst at market researcher International Data Corp. .

Because of the depth and breadth of the merged, complementary product lines, the implications for the industry are bigger than last year's US$4 billion acquisition of Stratacom Inc. by Cisco Systems Inc., says Silva.

"There is very little product overlap and very little channel overlap," which was a big problem in the SynOptics-WellFleet merger, she says.

The combination of US Robotics' modems and Total Control remote access server line, combined with 3Com's strength in LAN switching, will allow the merged company to be a formidable competitor in a variety of networking markets, Silva says.

"They'll be able to play in the [telecom] carrier space, extend to ISPs and have a presence in the home."

Where there is product overlap, the merged companies will go with the stronger product line and draw strength from both companies' engineering staffs, Silva says.

For example, in an attempt to broaden its product line, U.S. Robotics bought Scorpio Communications Ltd., which offers products that compete with 3Com switches.

"But US Robotics hasn't been really successful in penetrating that part of the product space, so they'll [the merged company] take the best of what is available, sticking to 3Com [switches] and moving forward with that while sticking the Scorpio engineering staff into 3Com."

Other analysts were also bullish.

"In time I think we're going to look back and think that this is one of the more clever things done in this market," says Thomas Nolle, president of CIMI Corp..

"From US Robotics point of view, the modem market is about to run out of gas, especially at the top end, where the new 56K-bps modems aren't in reality going to offer that much more than what 28.8K or 38.8K give you now - it's just that they cut the lag time a bit online, between what you want to happen and when it actually does happen," says Nolle. "So they had to branch out.

"On the 3Com side they've gone from being a box pusher extraordinaire to emerge as the most serious challenger to Cisco, but because they've taken on this issue they need a better wide area network product line."

In this sense, modems, as well as US Robotics Total Control line, are important.

"3Com's whole strategy depends on owning the connection to the user, and remote access has been a huge hole in their product line. Remote access for corporations is going to be a No. 1 priority for the rest of the decade, so 3Com needed to do this."

Meanwhile, the added revenue gives 3Com added financial muscle, helping them close in on Cisco's total revenue, Nolle says.

Nevertheless, the new 3Com will continue to face tough competition, other analysts point out.

"With this merger, the combined business will almost certainly encounter increasing competitive strains from its most direct competitors," according to an analysis report from David Thor at market researcher Sherwood Research.

"The competitive environment in these markets has heated up in the past six months ... and Intel Corp., Motorola and Rockwell entering into the fray will immediately capitalise on the merger trauma and attempt to garner market share," according to the Sherwood report, indicating that the merger period might be tougher than other analysts believe.

Sherwood also cautioned: "The current businesses of 3Com and USR that focus on client-side equipment (network interface cards and modems) should be carefully reassessed as thinner PC clients begin to reduce client equipment margins."

Meanwhile, the stock value of the companies moved down somewhat today in the wake of the news, with 3Com closing at 35, down 4, and U.S. Robotics closing at 59 1/4, down 1 3/4.

3Com, in Santa Clara, California, can be reached at http://www.3com.com/. U.S. Robotics, in Skokie, Illinois, can be reached at http://www.usr.com/.

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