3Com is setting a US-Asia trend, says CEO
Buying its Chinese partner and going private is all part of a drive for a clearer message.
By Matt Hamblen, Computerworld US | Computerworld US | Published: 07:55, 28 December 2007
Edgar Masri, now the president and CEO of 3Com, rejoined the networking company in August 2006 after six years at Matrix Partners, a venture capital firm. Before that, he was general manager of 3Com's network systems business unit. Since his return, the Massachusetts-based company has acquired 100 percent of its former joint venture with China-based H3C Technologies, formerly known as Huawei, and announced that it is being bought by Bain Capital Partners, a private investment firm, for US$2.2 billion in cash. As the company looks to go private, 49 year-old Masri talked with Computerworld about how 3Com has grown, how it hopes to take on Cisco and the importance of open source.
With 3Com on the brink of going private, what does your company do best and what needs to be improved upon?
I came back to 3Com about 18 months ago. I was really excited and we transformed it into a $1.3 billion company for fiscal 2007. We restated our commitment to enterprise customers and also to small and medium businesses.
What we do best: 3Com started as a great Ethernet company with Bob Metalfe, and we provide networking equipment that is high quality, low cost and easy to use. We've taken advantage of the rise of China with the proliferation of low-cost talent there. In 2007, 3Com acquired 100 percent of the former joint venture with China-based H3C Technologies. We're also very diversified geographically. In China, we're in three cities, we're in India and we're in Austin and Marlboro in the U.S.
We clearly need to improve the way we tell our story. There have been many changes, which makes it more critical to send the message who we are. I try to stress internally [to employees] to approach customers as the leading provider of high-quality, low-cost networking gear that is open to a variety of applications out there. More and more customers buy applications and look at network as plumbing. We think about it as low cost, but we also feel it should facilitate choice and flexibility.
Has your Linux strategy helped against competitors?
We have an open strategy, which is open source based on Linux. Many networking companies are starting to do that, but I believe we have an 18-month head start. We recognise customers want open architecture and source, mainly in small and medium businesses. We also have the Open Services Networking architecture. One very large customer wanted better network monitoring and had made a clear choice about the application it wanted to use, and said we were doing it better than other providers.
The best way for me to convey our message of high quality is to tell of a recent meeting with 3Com resellers in Europe. They sell competitors' gear as well and still said that they were amazed at the reliability of switches and routers from H3C. With some others, they said customers had problems once a week. That talks to me.
We had been outsourcing break-fix support services to customers, but that has been brought back inside for the past four or five months. Customers are buying reliability and peace of mind.
It may be obvious, but why do customers want open source?
Two things: It is low cost, with customers paying us insurance to get support coverage, and second, they do it to gravitate their network around an application. Smaller enterprises are finding open source is providing them applications and we are an enabler. It's different for larger companies, but we also support a large number of enterprise applications and are very scaleable with them.
On the subject of Cisco Systems, with its 70 percent share of routing and switching, what does 3Com plan to do on the competitive front in coming years?
While Cisco is a great company, there are areas of the world where we can serve the market and change the rules of the game. China, by all accounts, is where there's a much closer battle with Cisco than anyplace else in the world. Cisco is global, but not necessarily strong in Latin America, Brazil and Mexico. 3Com has a long-standing investment plan, based on high quality, low cost and openness. Those qualifications have tended to work best in emerging markets, with medium-size companies that are on a more constrained budget.
We believe there are other parts of the world that will lend themselves to 3Com and other players to become a leader or a clear alternative to Cisco, such as Eastern Europe and Russia and India. We invariably run into Cisco, and I can tell you I'd like to see us be more successful in the U.S., which is a tougher market than these various countries I've mentioned where we have a local presence and language advantage.
In late September, you announced Bain Capital was buying 3Com for $2.2 billion in a deal to be completed early next year. Some customers aren't clear on what's happening with that move, so what can you tell us?
Bain Capital and the 3Com management team are very much aligned toward building a great leader in networking. That was at the source of our decision.
Do IT managers buying 3Com have anything to worry about?
Customers should feel more engaged and excited ... primarily around healthier financials, higher-quality and lower-cost products than the competition and with a message that's more consistent than in the past.
Does going private also mean you escape the tyranny of the public quarterly report and that you have more time and flexibility to innovate new products?
We hear often that companies in general tend to look at that benefit of being private. I personally feel that the most important point is our commitment to our mission and consistency to it, and less relevant is whether we are private.
As a company, we have a more complex story to tell. We are building a company that has very few equivalents. Lenovo is also trying to bring east and west together. You may be able to name a couple of others aside from very large multinationals. This is the trend. The U.S. and Asia are coming together. The way to success is to come together and bring talent from both sides.
What will be the cool technologies from 3Com in the next few years?
At a very high level, it is something that is transforming the industry. That's the advent of multicore chips. It will revolutionise the way technology is done. It's going to allow you to do much more. In our space, it means video multistreams. If you have multicore in security, it is a tipping point product. Customers want more of their traffic verified and tested and checked, which means you need multicore technology. You can allow customers to do more with a fixed budget.
Will you have that capability in products in two years?