3Com CEO Claflin focuses on revenue growth

Bruce Claflin, a former network executive at IBM and Digital Equipment, joined 3Com as president and COO in 1998. At the time, 3Com was riding high after its huge merger with U.S. Robotics. But the Internet bubble burst in 1999, the merger didn't pan out and 3Com's fortunes went downhill fast. By 2001, Eric Benhamou was out as CEO and Claflin was at the helm. He moved quickly to get 3Com out of ill-conceived ventures such as Internet radio. As revenue continued to plummet and losses mounted, Claflin switched the company's target market from service providers back to the enterprise, abandoned manufacturing altogether, and entered into a bold joint venture with a Chinese network gear manufacturer. Joel Shore recently caught up with Claflin.

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Bruce Claflin, a former network executive at IBM and Digital Equipment, joined 3Com as president and COO in 1998. At the time, 3Com was riding high after its huge merger with U.S. Robotics. But the Internet bubble burst in 1999, the merger didn't pan out and 3Com's fortunes went downhill fast. By 2001, Eric Benhamou was out as CEO and Claflin was at the helm. He moved quickly to get 3Com out of ill-conceived ventures such as Internet radio. As revenue continued to plummet and losses mounted, Claflin switched the company's target market from service providers back to the enterprise, abandoned manufacturing altogether, and entered into a bold joint venture with a Chinese network gear manufacturer. Joel Shore recently caught up with Claflin.

These last three years haven't been easy.

There are lots of captains of companies who in the late 90s were convinced that they were wonderful captains of their ship because they could get up every morning and every quarter and successfully sail the ship from point A to point B. But a good captain is someone that can sail a vessel safely from point A to point B regardless of the conditions. It's easy to do when there are fair winds, great visibility and calm seas. The question is, can you do it in fog, rain, lightning and thunder? And we had a whole cadre of CEOs who went year after year after year with sunny skies, fair winds, and thought they were captains. And then all of a sudden when the stormy times hit, they found that they didn't know how to captain the ship.

I really believe that as much as it's a pain, what we've been through, it is really the ultimate test of whether you can lead a company - can you lead it in good times and in bad. And in that regard it's been quite a challenge. It's exciting. And because we think we're coming out of it, it's also exhilarating. If the ship had gone down, maybe I wouldn't feel quite so positively.

A lot of people think it almost did.

I don't think it almost went down, because we did one thing really well early on: and that is we made absolutely sure we protected our balance sheet. We kept lots of cash, high liquidity, did everything we could ensure that we'd never have to face any underlying financial problem. So while the company had lots of difficulty and had to do all kinds of downsizing and make changes, there never was a question as to whether or not our existence was in jeopardy. And that was something I'm very grateful we avoided.

You decided to outsource all of your manufacturing and to create a joint venture with Huawei, a Chinese manufacturer of switches and routers. How has that been going?

So far so good.  You'll recall we had already outsourced quite a bit of our manufacturing a few years ago so this was an extension of something we were already doing. And in that regard it's not new or revolutionary. It's still difficult, but we had some experience.

The Huawei joint venture is a different deal. We were creating the company from scratch; it's the first major company that's a joint venture between an American and a Chinese high-tech company that has, as its principal mission, R&D.

Most ventures up to now have been just sales and marketing into China or maybe in manufacturing. This is the first time we actually put R&D inside a China-based joint venture and it was very new for China and new for our industry. So far we're very encouraged. But it's early; we just began in November.

What's the customer reaction? 3Com has been in businesses, out of businesses, and back in again. Customers don't know what to make of it.

I think you're, to a large degree, right, but not completely right. First thing, there are certain attributes we have that are really great anchors to the strategy. We do have a large installed base in the enterprise and it's a satisfied installed base. The reviews we get in terms of service, quality, reliability and support on this large installed base are extremely high. They have our products, they know what they do, and they like them. We have a strong brand. All of the brand studies show that it's very well known and generally well regarded around the world, whether it be channel or end customers. So while there have been lots of changes in the company, there are some things that have endured such as, a good quality installed base, a good customer base and a strong brand, which we've been able to leverage as we go forward.

Now it's true we've changed a lot of the specifics of the businesses we're in and which products and so forth, but there is, if nothing else, one thing that's helped us in the downturn is that we were not alone. Just about all of our competitors did downsizing, closed or restructured parts of their businesses. So in that regard we had lots of company.