Original URL: http://www.theregister.co.uk/2007/10/03/3com_potted/

3Com - a company built on ether

Master of technologies that vanished

By Bill Ray

Posted in Data Networking, 3rd October 2007 09:58 GMT

3Com's sale to Huawei Technologies and Bain Capital for $2.2bn marks the end of a company which pioneered Ethernet and network computing, and once owned Palm.

3Com was named for "computers, communication and compatibility" by one of its founders, Robert Metcalfe, who had come up with Ethernet as a networking technology while at Xerox Parc.

Ethernet wasn't, and isn't, a particularly good networking technology. Its listen-wait-then-listen-again rule for avoiding collisions on networks is simplistic, and both Token Ring and ARCnet offer greater predictability and (at the time) better speeds - but Ethernet turned out to be surprisingly robust, and as processor power increased the advantages of its competitors became less compelling.

3Com started shipping an Ethernet transceiver in 1981, and within the first year sales were up to $1.8m, despite a cautious approach to expansion.

It was the personal computer, in the form of the IBM PC, which really accelerated 3Com's sales - everyone wanted to connect their desktop computers to each other, mainframes, and printers. But, such was the success of networking, IBM and its competitors started building Ethernet hardware into their computers, depriving 3Com of sales.

OS Too

Faced with lagging sales, 3Com directed its attention to servers and developed 3&plus, its very own network operating system. By 1986 network servers accounted for 32 per cent of the firm's sales, and the company started to look at providing clients in the form of UNIX workstations called the 3Station, eventually leading to a proposed acquisition by Convergent Technologies Inc, which was pulled at the last minute.

By 1987, 3Com was competing with Novell in providing "workgroup computing" at a time when the word "Novell" was synonymous with "network". A close relationship with Microsoft for a NetWare-competitor called LAN Manager to be run on OS/2 was undermined by the spectacular failure of OS/2.

But another purchase in 1987 proved more prescient - Bridge Communications Inc manufactured boxes for connecting different networks together, something an awful lot of people wanted to do.

In the early 1990s, the company was again in trouble. With its network OS and LAN Manager not selling it decided to focus on hardware and integration, just as Novell started to give up making hardware and focus on systems. 3Com would now support Netware as well as 3&plus, which was a good thing as not a lot of people were buying 3&plus.

Within a year the company had given up having its own network OS - a wise move as the concept disappeared over the next decade.

The focus now was on the bits that make networks work - bridges, routers switches, and hubs. The company also went on an acquisition spree, buying up various companies involved in the manufacture of network components.

That spree culminated in the purchase of US Robotics, maker of the much-beloved Sportster and Courier modems. By this time 3Com was really in the business of selling low-end networking kit to end-customers and companies wanting to connect networks together, and US Robotic's strategy of providing cheap deals to ISPs to promote adoption of its proprietary standards worked well - in 1998 the company was bringing in $5.42bn, though in the same year it spent most of the profit on $253.7m of acquisitions and integrations.

The company also suffered, somewhat unfairly, as everyone assumed the day of the modem was pretty much dead with everyone moving to ADSL and cable modems within a few months. In reality, that shift took years - in places it's still happening, leaving US Robotics still selling dial-up modems to this day.

With US Robotics came Palm, but while it was fun to own the leading PDA manufacturer it was hardly core to 3Com's business. Despite making a little foray into consumer-connected devices in the form of the Audrey, the company decided to get out while the going was good and spun Palm off in 2000.

Boarding a slow boat to China

3Com had done many things, but most of its income was still coming from Ethernet cards - most of them admittedly embedded in motherboards, but still generating revenue. But into the 21st century even those started to disappear, the capability being built into system chips. The company cut back its workforce, which had risen to 13,000 in 2000, to about 2,000 staff and relocated to Massachusetts.

In 2003, 3Com did a deal with Huawei to get into the Chinese market, setting up a joint venture based in Hong Kong. That project proved so successful that last year the partners bid against each other for complete ownership. 3Com won the auction and took control in November last year. But the venture also allowed both Huawei and Bain Capital to get a good look at 3Com from the inside, and demonstrated how attractive the company could be.

The fact that 3Com has been bought comes as no great surprise: Nortel was in the frame for a while, though some predicted a further carve-up between established players. The deal will probably still have to be agreed by the US government, who might not want the Chinese learning how to make cheap Ethernet cards or network switches.

Huawei has been trying to raise its profile in the west for some time, as most tech journalists will testify, but purchasing 3Com is rather more dramatic than throwing alcohol at a few hacks as they've tried in the past. It gets a lot more press, too.

3Com started as that rarest of breeds: a successful pioneer, reflecting the brilliance of its founders but also a fair bit of luck in hitting the right product at the right time. Cautious in business, but willing to jump headlong into new technologies with little regard for their eventual success, 3Com made many mistakes but got lucky more often than chance would seem to allow.

We need a 3Com, willing to take risks and make mistakes, as if no-one takes the chances then nothing develops. Hopefully the new owners will maintain something of that pioneer spirit, they can certainly afford to.®