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Eric Benhamou & the Turnaround of 3Com (Part 17)

Posted on Wednesday, Sep 5th 2007

SM: Whom did you sell the high end product line to? EB: We sold it to Extreme. We put Extreme in business.

It was a bad decision because the analysis was wrong. It was taken in an overheated period, by an over impatient board who were comparing ourselves with companies whose growth rate was inflated and artificial. We were comparing ourselves to companies who, on paper, were selling lots of products but in reality the products were just going into warehouses.

It was 2000, the peak of the bubble, and we were holding ourselves to a yardstick which we were not using to measure others.

Looking back after the dust has settled, we were profitable when others were not. It was a bad analysis, conducted too quickly, approved too conveniently. The company was flushed because of the successful Palm IPO so we felt comfortable. We did not appreciate the parts of the business which were hard to measure. There is a great quote by Albert Einstein that says, “Not everything that can be counted counts and not everything which counts can be counted”. That sums up the situation.

What counted the most was the relationship with the large customers, good products, and that the customers were happy. We could measure the dollars and cents when we sold a high end switch, but that was the wrong thing to focus on because in total it was a good business, an integrated business.

This was the only decision in my tenure that I really feel bad about. I don’t blame my board for this. Ultimately it is the CEO who is accountable. I should have just had a good night’s sleep, called back the board and told them, it did not feel right. I should have listened to my gut. I tried to rationalize it in my head. Throughout my tenure I had listened to my gut more than analysis, and the one time I didn’t, it proved to be a really bad decision.

SM: You have chosen to remain as the Chairman since then, though? EB: Yes, I was asked to stay because Bruce (Claflin), the guy I had hired as my COO and President, was not a networking guy. He did not understand the business very well. It turns out this is when the board had to split between the 3Com and Palm board, and there were too many changes.

The 3Com board felt I should provide some transitional support, but this was around the time the bubble burst and 3Com had to begin a huge restructuring. I felt bad about leaving then, and people expected me to stay, so I figured I would stay another year, and then another year, so on. Perhaps I should have had a clean transition. Obviously I have never had an operational role in the company since.

SM: Bruce Claflin’s tenure at 3Com saw 3Com’s re-entry to the enterprise market, a joint-venture with Huawei in China, and the acquisition of Intrusion Prevention company, Tipping Point. The Huawei JV was later acquired by 3Com, and became the H3C unit.

Analysis:

Tipping Point was acquired with the stated intent of becoming a leader in secure networking. Tipping Point has grown within 3Com, although 3Com has since abandoned the idea of integrated secure networking, and has announced plans to spin Tipping Point out and take it public as an independent entity.

H3C, on the other hand, has become the most critical piece of the 3Com strategy today. Readers may recall my prior piece, Cisco’s Slim Down Program.

In my opinion, Cisco is a fatty company. Yet, all the emerging markets – whether it is Small Medium Enterprises (SME) in the US, or International markets like China, India, Russia, Brazil, etc. – need products at a vastly lower price-point than what Cisco’s fatty cost-structure would allow.

Therein, lies 3Com’s opportunity. Edgar Masri, 3Com’s current CEO, needs to pull off a low-cost strategy with the help of H3C, while not losing sight of key trends that are emerging from the left field. One such trend, is the Intelligent Network trend, and 3Com is working with multi-core chip vendor Tilera (read my interview with Anant Agarwal, Tilera’s CTO and founder) to create ways of processing packets at a much higher speed than where the industry has been so far. Edgar Masri’s background as a venture capitalist, as well as Eric’s own experience in spotting trends, should at least help the company identify key trends.

Execution is a whole other issue, and investors would be anxious to see milestone-based reporting from the 3Com Leadership team that provides reassurance that 3Com is, indeed, on track to deliver on its promise.

[to be continued]

[Part 16]
[Part 15]
[Part 14]
[Part 13]
[Part 12]
[Part 11]
[Part 10]
[Part 9]
[Part 8]
[Part 7]
[Part 6]
[Part 5]
[Part 4]
[Part 3]
[Part 2]
[Part 1]

This segment is part 17 in the series : Eric Benhamou & the Turnaround of 3Com
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