Give the 3Com executive team full marks. Getting $2.2 billion in cash for a thoroughly spent company is no mean feat.
Despite the acquisition of TippingPoint and its intrusion-prevention technology a few years back, 3Com has been running on fumes and past glories for the past decade.
Making more missteps over the years than Britney Spears made during her performance at the opening of the 2007 MTV Video Music Awards, 3Com squandered a leadership position in enterprise networking during the 90s, a leadership position in SMB networking during this decade, and made countless misguided and poorly executed acquisitions. It’s been a corporate train wreck, a textbook example of how not to run a technology company.
As for Bain Capital, you have to wonder what is being smoked or imbibed by the well-heeled denizens in the private-equity firm’s boardroom. It seems apparent, as suggested in the Wall Street Journal’s coverage of the deal, that Bain was insistent that hard-charging Chinese networking concern Huawei Technologies Co. take a minority share in 3Com, which once was Huawei’s partner in a joint venture called H3C. Bought outright by 3Com last year, H3C was created in 2003 to establish a presence in China, to create network equipment that neither company could do alone, and to leverage China’s extensive low-cost engineering pool.
Some observers wonder whether the deal will be approved by the US government, suggesting that it could be challenged on national-security grounds. According to this line of thinking, the concern is that 3Com’s networking technology could allow China to more readily eavesdrop on U.S. domestic conversations. What’s more, there is a concern that 3Com’s encryption technology will make Chinese networks more difficult for US intelligence agencies to tap.
My opinion is that these observers are overestimating 3Com’s products and technologies. There isn’t much left in 3Com that a multitude of other networking companies don’t possess. I seriously doubt that the Chinese could imperil the USA’s national security with any of 3Com’s mainstay technologies, though TippingPoint probably warrants a careful review. (3Com had been expected to spin off TippingPoint in an IPO. Bain will make that decision now. Depending on how large an equity stake and how much active involvement Huawei takes in 3Com, TippingPoint might still be spun off, either willingly or unwillingly by Bain.)
Over at CNET’s News.com, Jon Oltsik gets it right:
When companies go private, investors typically cut resources, sell off assets, and fix core operations. Once this is done, they look to go public or sell the now healthy entity to another firm. The problem here is that 3Com has already made more cuts than Edward Scissorhands. At the same time, other networking vendors have greatly improved products and sewn up markets. Cisco is Cisco; Juniper kills it in the service provider market; Hewlett-Packard is winning in the SMB space; Extreme has a killer end-to-end switching architecture, etc. Other than TippingPoint, I can’t recall the last time an IT executive even asked me if 3Com was still in business.
Like I said, Oltsik nails it. That said, I commend 3Com executive management on pulling off the sale, and I congratulate 3Com shareholders on their good fortune. As for Bain, I’m stumped. They better hope Huawei stays connected to this deal for the long haul. Without the ongoing commitment and support of the Chinese networking titan, 3Com isn’t much more than a husk of spare parts and lost opportunities.
Twilight in the Valley of the Nerds 