3Com launches WAN routers based on Huawei's technology

FRAMINGHAM (09/29/2003) - Networking vendor 3Com Corp. today introduced its first WAN router line. The new products are made by Chinese vendor Huawei Technologies Co., a move that highlights 3Com's increasing reliance on business partners and operations in Southeast Asia for technology development and product manufacturing.

The rollout of the Router 5000 series for midsize users and branch offices of larger companies follows 3Com's announcement earlier this month that it plans to outsource all manufacturing of its enterprise networking products. 3Com, which will lay off about 1,000 of its 3,100 workers as a result of the outsourcing decision, also said it's shifting development of low-end volume products to a new facility in Taiwan.

The Marlboro, Massachusetts-based company is trying to regain its position as a leading vendor of corporate networking equipment after temporarily abandoning that market three years ago. But 3Com faces stiff competition from bigger rivals like Cisco Systems Inc., and it's trying to rebound from losses that totaled US$283.8 million in its last fiscal year and $106 million in its fiscal 2004 first quarter, which ended Aug. 29.

Several 3Com users last week said they were mostly unconcerned about the restructuring program, adding that they hope the ongoing changes help strengthen the vendor. The users also welcomed the arrival of the Router 5000 family and said they trusted the pairing between 3Com and Huawei.

"I want (3Com) to do well, because we want to use them," said Sean McRae, chief information officer at Prudential Northwest Properties, a Portland, Oregon-based real estate brokerage that has 19 offices and 750 employees.

McRae plans to look closely at the new router line as a potential alternative to Cisco's products. "From a cost perspective, it sounds terrific," he said. "The fact that Huawei builds in China is not a concern as much, since we would have support from 3Com."

Ted Malos, director of technology at the Ventura Unified School District in Ventura, California, said he also will evaluate the Huawei-built routers to see if they would integrate easily into his network, which connects 27 school sites and includes IP phones and other equipment made by 3Com. The 5000 series "sounds like a Cisco replacement" because of its low cost and promises of high reliability, Malos said.

3Com said Chief Executive Officer Bruce Claflin and other top executives weren't available last week to discuss the company's strategy. In a statement issued Sept. 18, when 3Com reported its first-quarter results, Claflin highlighted the company's plan to set up a joint venture with Shenzhen, China-based Huawei and a voice-over-IP deal that it announced last month with Aspect Communications Corp. in San Jose, California.

"While it would be premature to suggest an industry or company turnaround, we are encouraged," Claflin said, noting that 3Com began its new fiscal year "with an expanded set of products [and] an enhanced set of partners."

Despite its losses, 3Com still has $1.5 billion in cash. And the company's recent moves should help make it stronger over time, said Zeus Kerravala, an analyst at The Yankee Group in Boston. Kerravala said that Huawei "makes decent products" and that shifting some of 3Com's engineering work to China is a sensible plan. "You can save a lot by replacing a $150,000 engineer in the U.S. with a $25,000 engineer in China," he noted.

But Wesley Cummins, a financial analyst at B. Riley & Co. in Los Angeles, was skeptical about 3Com's prospects. "It was a mistake to set up the joint venture," he said. "We don't think there's room for another vendor in the high-end router space."

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