3Com CEO Expects Some IT Vendors To Simply Disappear

Bruce Claflin says the “walking dead” have neither the means or innovation to ch

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Question: If a tech vendor falls in the night, does it make a sound? Normally, it might, as the echoes of disgruntled customers, VARs and even financial analysts ring out. But that may be changing, says one Silicon Valley veteran. Bruce Claflin, CEO of 3Com, says there are "walking dead" among us, companies that have neither the financial means nor product portfolios to change their fates.

In years gone by, such companies may have been fodder for acquisition. But with the share prices of even strong technology giants under pressure, the fate of many once-promising companies may be dismal. Many are likely to simply fade away, Claflin says.

"I really believe there are a lot of companies today in the technology that are what I call zombies. They are walking dead. They have enough cash to keep in business, but they don't have sufficient resources to change their destiny. Their only chance of survival is if the industry turns around and creates growth," he says, adding that that is an uncertain prospect, at least for the foreseeable future.

Unlike the zombie companies, Claflin says 3Com, which lost $79.2 million in the most recent quarter, is taking its fate in its own hands. Most notably, it recently entered into a major joint venture with Huawei Technologies that will broaden 3Com's product portfolio of enterprise networking solutions. Under terms of the deal, 3Com will have the right to sell the joint venture's products under the 3Com brand everywhere except China and Japan. In China and Japan, meantime, the joint venture will sell both Huawei networking product plus existing 3Com products.

"Huawei is contributing basically all of the assets of their enterprise business -- all of their products, sales, marketing, engineering, support, etc. -- while we are contributing our sales people from China and Japan, and $160 million of cash," Claflin says. "Yes, we'll have a better position in China and Japan, but now we can go to our VAR partners in the Western markets and be able to show a product line that's essentially doubled the available market to what we had before, and allow our partners to sell a much broader product line and to a broader set of customers than we had before."

In a wide-ranging interview that covered the aforementioned zombies, which he declined to identify by name, and a variety of other topics, Claflin touched on life as CEO in a down market and Cisco's most recent move to acquire Linksys, a leader in home networking products. The irony that the world's largest networking products company is going downstream to enter the home market at a time when 3Com is going upstream to be more competitive in the enterprise market was not lost on Claflin.

"Very interesting, isn't it? We're passing each other in the elevator," he says, adding that he'd rather be going up than down now. The impact of the deal on his company is likely to be marginal given that 3Com doesn't play much in the consumer market segment. But the company does have products that it sells to home office users, and that will likely be impacted, at least somewhat.

"As I read the Cisco press releases, they do play up the home networking [aspect.] I wish them the best as they proceed into a market that has historically very low margins," Claflin says. "I've been involved in the consumer market off and on for 15 years, and in various things from PCs in the home to Palm and so forth. It is possible to be successful with technology to the home and to the consumer. But it really takes a highly compelling offering that just jumps off the shelf. It has to be just drop dead simple to use to keep support costs down. The channel you sell through typically doesn't add a lot of value add, so the consumer better know what he or she is buying and just buy it. Typically, support costs are high, and, typically, the logistics of selling to retail, with all the inventory [headaches], is a difficult business to be in. I wish them the best, but I'd much rather be going in our direction than theirs."

In addition to Cisco, Claflin also discussed Foundry Networks and Extreme, two companies he emphatically denies he planned on buying. He says that his core business remains under pressure and the outlook ahead murky, which helps explains why so many just may end in the zombie-like phase Claflin suggests.

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