3Com Corporation’s New CEO Signals Change in Focus to the Chinese Market

Telecommunications equipment maker 3Com Corp. is based in Marlborough, Mass.

But the announcement that its new chief executive will be based in Hong Kong leaves no doubt the company’s future is in China.

Robert Mao SM ’72, previously 3Com’s executive vice president of corporate development, replaces outgoing chief executive and president Edgar Masri.

Former 3Com executive Ronald Sege, who left the company a decade ago, will serve as president and chief operating officer, a job that will remain in the United States.

“We have the opportunity to bring in two very experienced and talented individuals who the board believes are well equipped to lead 3Com forward,” said 3Com spokesman Kevin Flanagan, “particularly when it comes to maximizing the success of our already successful China operation.”

Mao, former president of China operations for Nortel Networks, a Canadian telecom vendor, is a US citizen and a graduate of the Massachusetts Institute of Technology and Cornell University.

“Bob’s bicultural background, extensive business experience in Asia, and fluency in Mandarin and English offer a rare set of skills that can bridge Chinese and western organizations,” said 3Com’s board chairman, Eric Benhamou.

Once one of the world’s leading networking hardware firms, 3Com has faded in recent years, falling far behind rivals like Cisco Systems Inc. But the company has found salvation in China’s booming market for telecom gear. The company’s H3C business unit, based in Hong Kong, was a joint venture between 3Com and China’s Huawei Technologies, until 3Com bought the entire operation in 2006.

H3C, which makes switches, routers, and other communications equipment, generated two-thirds of 3Com’s revenue for its fiscal third quarter, which ended Feb. 29.

“H3C is their growth path, not traditional 3Com stuff in the US,” said Zeus Kerravala, network equipment analyst at Yankee Group in Boston. “Their brand has really been tarnished here.”

Besides, while the US economy is on the brink of recession, demand for telecom gear in China remains strong. Kerravala said the H3C business should shield 3Com from the effects of the American slowdown.

Jeff Evenson, senior analyst for US data networking at the investment firm Sanford C. Bernstein LLC in New York, said that putting Mao in China could reinforce efforts to develop inexpensive H3C products that could then be exported worldwide. The move could also help 3Com hang on to vital Chinese engineering talent, he said. 3Com has already offered lavish cash payments to keep workers who were brought into the company after the H3C acquisition.

Indeed, Evenson thinks 3Com would be better off selling its TippingPoint business, which makes network security gear, and another US-based operation that makes Internet-protocol telephone products, to focus on H3C. “I would just shift the company to be a Chinese company,” he said.

Mao’s appointment comes weeks after a bid to take 3Com private was blocked by federal regulators. Bain Capital Partners put together a $2.2 billion deal in which Huawei would acquire a 16 percent stake in 3Com. But the plan came under fire from members of Congress, because the TippingPoint business makes network security gear used by US government agencies, including the military. Huawei has close ties to China’s military. Critics worried that it might share technical details of TippingPoint products with Chinese intelligence services, helping them break into US government computer networks.

The Committee on Foreign Investment in the United States, which can block deals that jeopardize national security, said in February that the Bain-Huawei plan was unacceptable. 3Com is now trying to collect a $66 million fee from Bain, to compensate it for the failure of the transaction.