10/9/2007 -- Networking stalwart 3Com Corp. took a step backward last week, announcing its intent to be acquired by a private investment firm for $2.2 billion.

It might be the end of an era (of sorts) for the troubled networking power, but analysts believe it could be a good move, on balance, for 3Com.

"The deal could throw a lifeline to a networking concern that has long been financially troubled and had difficulty dominating markets it entered," wrote B. Riggs, a networking analyst with market watcher Current Analysis Inc. "However, private equity buyouts often result in a significant amount of trimming as the acquired company is prepped to be sold again. This adds a level of uncertainty to the fate of 3Com's various business operations that could cause customers and partners a great deal of concern."

The good news, Riggs said, is that the acquisition should help stabilize 3Com, particularly in the financial arena.

"The move promises to help the financially struggling networking concern continue operations and execute on initiatives to become more of a global competitor by expanding its presence in emerging markets," he wrote.

On the other hand, according to Riggs, everything depends on how 3Com's stakeholders -- principal stakeholder Bain Capital and minority owner Huwaei -- go about reorganizing the company.

"Without clearer insight into how Bain and minority stakeholder Huawei plan on streamlining operations, it remains uncertain how 3Com's various voice, data, and security product portfolios will benefit in the long run," Riggs said.

Also in the "plus" column, both Bain Capital and Huawei have existing relationships with 3Com.

"Huawei and 3Com formed a short-lived joint venture aimed at expanding 3Com sales operations in Asia and Europe, and at Huawei creating a market for its networking gear in North America," Riggs said. "Last year, Bain bid against, and lost to, 3Com for a controlling interest in the Huawei-3Com joint venture. But certain members of 3Com'ss executive team have long known and worked with Bain both before and after 3Com's s acquisition of H3C."

Riggs thinks this kind of experience can only be a good thing. "Because of Huawei's previous partnership with 3Com and Bain's previous working relationship with 3Com executives, 3Com is being acquired by companies that understand its value proposition and have experience working directly with the 3Com in a practical way," he said. "Transitioning from a publicly traded company to a private one will help 3Com focus on long-term strategies rather than responding to Wall Street's short-term demands."

For example, Riggs pointed out, 3Com desperately needs to establish better sales channels in emerging markets, such as in Asia and EMEA, where its North American rivals are less dominant.

"Bain, with operations in Hong Kong and Shanghai, has resources to leverage in Asia, and Huawei is a data networking force to be reckoned with in EMEA," he said. "And because 3Com is being purchased by a private equity firm rather than a rival developer of networking systems, there will be no new product line overlap issues to be addressed, should Bain's acquisition of 3Com be completed early next year."

This should free Bain and Huawei up to concentrate on rebuilding 3Com, Riggs predicted: "Rather than address product line rationalization issues and overlapping of sales, support, marketing and administrative personnel, Bain can focus more on streamlining operations and helping 3Com formulate long-term strategies that will result in a more viable corporate operation in the long term." --Stephen Swoyer