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3Com: Life goes on

Company shrugs off customer relations faux pas following large enterprise exit.

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SANTA CLARA - Despite the customer relations fallout from its recent restructuring, 3Com is confident that business will continue as usual.

3Com alienated scores of customers by abruptly canceling three products as part of a March restructuring that saw the company exit the large enterprise network equipment market. Although 3Com is offering a migration path to Extreme Networks' gear, many customers were angered because they felt abandoned by the company and duped into buying products just days or weeks before they were discontinued.

Some users on a Network World Fusion Web site forum say it will be difficult to trust 3Com now and are reluctant to do business with the company again. 3Com says it really didn't have a choice.

"What would be the alternative to what we did?" asks corporate spokesman Brian Johnson, who declined requests for an interview with company President Bruce Claflin. Sources say Claflin and 3Com Chairman Eric Benhamou are being "protected" from customers, an assertion Johnson strongly denied but nonetheless appeared to support.

"Given the fact that [this story is] focused on customers, it's probably best just to let the customers speak for themselves," Johnson says. "It's not the right time and not the right opportunity for us to speak out on this."

Vendors exiting unfruitful markets usually phase out products over several months and give customers at least that much advance notice, analysts say. Yankee Group Analyst Eric Hindin says 3Com's abrupt method, which caught most users off-guard, may signal the beginning of the end for the company.

"What 3Com did was unprecedented" in the annals of customer relations, Hindin says. "Wall Street may give them credit for being no-nonsense, but corporate America will be a little less forgiving. Two or three years from now they could be a business school study in how not to handle customer relations."

3Com's Johnson says the company does not feel it has irreparably damaged its reputation or credibility with customers, old or new. Also, 3Com does not expect any repercussions from cutting off its CoreBuilder, PathBuilder and NetBuilder customers.

Johnson chuckled when asked if 3Com feels it can recover from the strong negative customer reaction to its exit from the large enterprise market.

"Yeah, we do feel we can recover because we're now focusing on markets and technologies where we're already successful," Johnson says, referring to the consumer, small and midsize business and service provider arenas. Damage to end-user relations will be minimal, he adds, because the discontinued products were the only ones sold directly to customers - 95% of 3Com's other products are sold indirectly, mostly through distributors Ingram Micro and TechData.

Nonetheless, customers of those resellers may be watching the tension between 3Com and its large enterprise base unfold, analysts say.

"One of 3Com's new initiatives is to sell visitor networking gear to hotels," notes Yankee Group's Hindin. "If you're a hotel using 3Com gear, are you going to put any eggs in the 3Com basket as you implement new visitor networking initiatives? I think not."

CurrentAnalysis Analyst Tere Bracco believes 3Com's handling of the large enterprise customer base will impact sales of the company's lower-end wiring closet LAN switches, such as the popular SuperStack line.

"3Com is going to have a devil of a time recovering," Bracco says. "They have discounted the connection that the high-end enterprise customers had between their high-end devices and their low-end. They'll find that when the CoreBuilder customers get a new vendor for their high-end devices, they will use that same vendor when it comes time to replace the low-end."

Some 3Com customers say they'd like to continue buying the company's products. But the decision may now be out of their hands.

"We will continue to get the SuperStack line, I guess," says Jack Gammons, LAN/WAN analyst at St. Vincent's Hospital in Birmingham, Ala. "As long as my upper management lets me buy it."

Others are confident, for now, that the SuperStack will not meet the same fate as the CoreBuilder.

"I do intend to continue to buy 3Com gear, primarily the SuperStack 3300 series for the edge," says Dave Kieper, associate director for IS at the University of Wisconsin, Green Bay. "Some of the products that they're still supporting are very viable, very good, solid products. We will replace them when we need to."

Other analysts say the customer relations ripple effect from 3Com's product cancellations will be minimal. Only 15% to 20% of 3Com's customers use both the CoreBuilder and SuperStack switches, says Frank Dzubeck, president of Communications Network Architects in Washington, D.C.

3Com's Johnson insists the company had the interests of customers in mind when it killed the large enterprise products. But 3Com also had its bottom line to think about.

"We're always going to do the best thing that we can possibly do for our customers, but we have to run a business here," he says. "We weren't succeeding in these businesses."

Still, Gammons of St. Vincent's Hospital wishes 3Com could have handled its exit a little more delicately.

"Just because you're not winning a particular market doesn't mean you just cut it off," he says. "I could see phase-out a little better than just cutting it off. They left me hanging out to dry."

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