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3Com sees stronger growth
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January 15, 1998: 5:43 p.m. ET
CEO Benhamou optimistic about new products across all businesses
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NEW YORK (CNNfn) - Networking giant 3Com faced some growing pains in 1997. Although the market for computer network products and solutions grew explosively during the year, 3Com found it difficult to keep its inventories in line with demand and faced a stock retreat in the latter part of the year.
3Com Chairman and CEO Eric Benhamou spoke with CNNfn correspondent Steve Young on "In Play" about his plans for the company in 1998. Excerpts from his remarks follow:
STEVE YOUNG: I understand that you told the analysts yesterday that you foresaw something like 20 percent growth for networking companies in the year ahead.
ERIC BENHAMOU: Yes, that's correct. This is our estimate of the growth for the overall networking industry in 1998 vs. 1997. It's up from 1997 where we actually saw growth, but it was fairly disappointing at around 15 to 16 percent.
YOUNG: One of the questions, obviously, is Asia. The Asian overhang cuts both ways in some cases -- how is it affecting your company?
BENHAMOU: We're certainly not immune to what's happening in Asia. We happen to be a large supplier of networking products in Asia and at about mid-1997, the Asia-Pacific market represented as much as 13 to 14 percent of our revenues. Today, that market is only in the single digits. So we've clearly seen this region deteriorate while at the same time the Americas as well as Europe have actually enjoyed rapid growth.
YOUNG: One of 3Com's problems last year was inventory control. I understand you've been making progress there.
BENHAMOU: That's correct. ... We've adopted a much more conservative inventory for our major product lines. We're about two-thirds of the way through our inventory reduction program. If things continue to go as planned, we expect to complete the inventory reduction this fiscal quarter and have these inventory problems behind us as we engage in our final quarter for the fiscal year.
YOUNG: I have what may be sort of a screwball question. In the PC business, more and more companies are moving to the build-to-order model. Is anything like that feasible in networking?
BENHAMOU: It does not have as much applicability [to networking]. On the other hand, we take a strong interest in built to-order models for PC, because many of our network interface cards and modems are some of the elements that you integrate when you create a network-ready PC. Many of the largest PC vendors that have build-to-order programs are some of our strongest OEM customers and they integrate our network interface cards and our modems as part of their build-to-order programs.
YOUNG: Let's talk a little bit about 3Com's (COMS) stock price. Your company is struggling, as have other networking companies in the last several months. Back in the summer, the stock was up at about 57 to 58, but in November it had dropped to as low as 30. A small bounce today brought the shares up to around 33.What can you say to your shareholders about share price as you forecast 20 percent growth?
BENHAMOU: Well, we certainly don't forecast share price, but as we look into 1998 we see a year that, first of all, should be stronger in terms of industry growth rate than last year. In addition, we're engaged in a very strong new products cycle across all facets of our business. New products for the high end of the enterprise market, for the small and medium-sized businesses, for carriers as well as for consumers.
This is by far the most sweeping new product cycle that we've ever had as an organization, and we believe that these products are extremely well-positioned to hit the markets with exactly the right feature set and right price points. So we should see some good growth ahead.
YOUNG: One of the hugely successful consumer products has been the PalmPilot developed by US Robotics which 3Com now owns. I was in Las Vegas just last week when Microsoft (MSFT) showed what could be called a "Palm PC." Hewlett-Packard (HWP) has announced "Palmtop PCs."
There have been some indications your company was not amused and might even take some action against the so-called "Palm PC." Where does that stand?
BENHAMOU: Well, we view Microsoft as well as many other companies as competitors in that space. We know that the hand-held form of computing is going to be a very, very large industry segment as we move into the 21st century and so we think the stakes are extremely high and expect the PalmPilot to attract a lot of competitors, Microsoft being one of them.
YOUNG: They use the name "Palm PC" though, does that encroach too closely on PalmPilot?
BENHAMOU: We don't know. We're looking into it at the moment.
YOUNG: Well, you've certainly got more than a million PalmPilots sold, so you've got a huge jump on everybody else. 
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