3Com Preps New Enterprise Products, Eyes Possible Acquisitions

The new products are part of 3Com's continuing push to expand its enterprise networking, VoIP and security business.

President and CEO Bruce Claflin said 3Com will soon release a Linux-based version of its VCX softswitch that channel partners can sell to mid- to large-sized customers.

"With the release of this, we expect to open the aperture of sales, leveraging the channel base," Claflin said during a conference call to discuss the Marlborough, Mass.-based company's quarterly financial results.

3Com has been toiling to develop a channel strategy around the VCX line since its launch in April 2003. It faced a stumbling block, however, because the softswitch originally was based on Sun Microsystems' Solaris operating system, a competency not widely held among 3Com's partner base. 3Com executives last year said the company was working to move VCX to a Unix or Linux platform.

Claflin said 3Com also plans to expand its switching line sourced from its joint venture with Chinese networking vendor Huawei Technologies, with new product introductions slated for this quarter and the next.

3Com's product plans follow the launch this week of the new Router 6000 series and the expansion of its Router 3000 series enterprise products and the launch last week of the Switch 7200 security switch.

Claflin also said 3Com is in a good position now to consider acquisitions.

"Going forward we think that our business is largely in balance from a cost and expense standpoint, we think the market conditions are better, our balance sheet is extremely strong and therefore we are more aggressively considering the possibility of acquisition," Claflin said, noting that the company is potentially interested in acquiring technology that is complementary to its current offerings, such as Layer 4-7 switching and security.

As 3Com beefs up its enterprise offerings, it is also taking steps to strengthen its base of enterprise-focused channel partners. For example, the company is decreasing volume rebates that some partners in the past used to drop prices and instead replacing them with higher levels of market development funds to help partners build their competency in 3Com products and create more end-user demand, Claflin said.

For its first quarter, 3Com reported a narrowed loss and essentially flat revenue compared to the same quarter a year ago.

"While not robust, we believe the networking industry continues to have modest growth," Claflin said. "Our challenge as a company is to increase our participation in the higher growth segments while limiting our exposure to slower growth segments," he said.

Claflin pointed to sales of its 10/100 switches as an area where 3Com saw disappointing results that declined sequentially and wiped out market share gains made in the previous quarter.

At the same time, 3Com's router and core switches, sourced from the joint venture, both saw sequential growth, he said.

3Com earlier this month warned that revenue for the quarter would come in below previous expectations of flat to slightly higher than its fourth-quarter revenue of $183 million.

For the quarter ended Aug. 27, 3Com reported a loss of $36 million, or 9 cents per share, compared to a loss of $106 million, or 29 cents per share, in the same quarter a year ago.

Revenue for the quarter was $162.3 million, essentially flat when compared to revenue of $161.9 million in the same quarter last year.

3Com's quarterly revenue results met financial analysts' expectations, according to First Call/Thomson Financial.

For the second quarter, 3Com expects to report revenue between $170 million and $180 million.

Shares of 3Com Thursday closed flat at $4.32 prior to the announcement.