Dot-com rush damages IT
3Com discontinues its enterprise networking business and hands service contracts to Extreme Networks
3 April 2000 - Last week's decision by 3Com to quit enterprise networking could be just one of many such moves as sky-high dot-com valuations lure suppliers away from slower growing markets, regardless of the impact on existing customers.
By discontinuing its enterprise networking business and handing service contracts to Extreme Networks, 3Com hopes to focus on broadband Internet products in an attempt to boost its market value.
Cisco, the dominant supplier of Internet infrastructure products, last month overtook Microsoft as the world's most valuable company, with a market capitalisation of $527 billion, 25 times 3Com's valuation despite having less than three times its revenue.
3Com's move has angered many loyal customers who now have either to accept Extreme as their new networking vendor or find another and risk incompatibilities and increased management overheads.
"We took a risk, but perceived it as being a risk on the technology, not on the supplier," said a 3Com customer who requested anonymity. "3Com was not the cheapest, but it gave us platitudes about the products lasting seven to 10 years. We saw 3Com as a reliable supplier of leading-edge equipment. It has now told us to go with Extreme, but I have already got badly burnt fingers. And Extreme may also go the same way."
Last month network equipment supplier Cabletron split in four. In today's market, it is improbable that these four businesses will achieve a stock-market flotation before being bought.
Marina Mayes, a senior analyst at Gartner Group, said small networking vendors like Cabletron have a limited future. "The enterprise has been very lucrative for networking vendors but the huge growth in this area has slowed."
Last year, IBM abandoned its own network hardware to resell Cisco equipment. This has allowed IBM to focus on its e-business integration services.
Lucent recently spun off its enterprise division into a separate company.