The failed 3Com and US Robotics merger

On June 12, 1997, 3Com and US Robotics merged at a cost of $8.5 billion. At the time, it was the merger of the two biggest names in their respective fields, and it seemed poised to become a telecommunications giant. Instead, it ended up being the beginning of the end for one storied brand and the beginning of a sharp decline for the other. In this blog post, we will look at what went wrong.

The best modems and best networks, under one roof

In 1997, US Robotics was the biggest name in modems. It wasn’t the only thing they made, but their claim to fame was having spent the previous decade dethroning Hayes to become the market leader and the major innovator in the field of dial-up modems.

3Com was the biggest name in networking. Their network cards were the standard by which everything else was judged, and large enterprises had racks full of 3Com hubs and switches in their wiring closets.

It seemed like a really good synergy at the time. The two companies also had some mutual customers in the booming Internet provider market. The same companies who needed huge quantities of US Robotics modems also needed 3Com networking equipment to move that data between the modem banks and the Internet. Not even two weeks after 3Com announced the deal, AOL agreed to a monster deal to replace its modem banks in more than 120 cities with US Robotics X2 modems.

They really were the two best of breed

And I can tell you, I fixed a lot of weird intermittent home Internet issues by replacing cheap modems with US Robotics modems. And I also fixed some weird intermittent networking issues by replacing cheaper network cards with 3Com network cards. Three or four years ago, I found the box of discarded network cards that I had replaced with 3Com cards over the years, and while all of them work under some circumstances, I quickly remembered why I replaced them in the first place.

What went wrong with the 3com-US Robotics merger

The new 3Com was a company built for 1998. The dotcom boom still had plenty of growth left in it. There were still some businesses that were building out their first networks. And a large number of businesses were replacing 10-megabit ethernet, Arcnet, or Token Ring with Fast Ethernet. 3Com was the safe choice for all of that. They were the brand no one questioned you for buying and nobody fired you for buying.

But it couldn’t be 1998 forever. And there was a huge shadow looming overhead. I don’t know how 3Com and US Robotics management missed it. That shadow that spelled doom was broadband. Everyone else in the industry knew it was coming. There were just two things we didn’t know. We didn’t know was when it would be widely available and affordable. We also didn’t know how cable, DSL, and ISDN were going to divide up the broadband market.

What we did know was that legacy analog dial-up modems that worked over old fashioned copper telephone lines wasn’t going to be a growth market for much longer. Broadband was about to take over as a growth market, and largely at the expense of those traditional dial-up modems.

I don’t think 3Com needed US Robotics in order to have a monster year in 1998 and 1999, and they bought US Robotics when it was at its peak. They could have waited a couple of years and purchased the company at a much lower price. That’s assuming the slimmed-down US Robotics had anything 3Com needed by then.

Missing the boat on broadband

Neither company was a big player in either DSL or cable modems. They were positioned to compete in the ISDN market. But ISDN was slower and more expensive than the other two options, so the main reason to get ISDN was if you couldn’t get either of the other options. 3Com did have routers to sell to broadband customers, but they completely missed out on selling the modems.

It wasn’t long before the most valuable component of the US Robotics acquisition was Palm, the maker of handheld computers.

Unwinding the 3Com/US Robotics merger: The Great Divorce

It took about two years for 3Com to unwind the acquisition. First it spun off Palm on March 1, 2000. Then it spun off what was left of US Robotics in June 2000. US Robotics was able to continue selling dial-up modems as a niche offering for those who still needed a high quality dial-up modem, and they also introduced a line of wireless networking equipment, a somewhat related field where they could hope to trade on name recognition.

Palm Pilots had their day, but the Blackberry displaced the Palm Pilot as the must-have handheld device, and then in 2009 the smartphone essentially wiped out both of them.

3Com limped into the 21st century rather than exploding into it, and became an acquisition target. A planned acquisition by Bain Capital failed in 2008 because Huawei was involved in it, raising regulatory concerns. HP bought 3Com on November 11, 2009 for $2.7 billion, not even 32 percent of what 3Com had paid for US Robotics. HP integrated 3Com with Aruba Networks and no longer uses the name.

Dave Farquhar

David Farquhar is a computer security professional, entrepreneur, and author. He has written professionally about computers since 1991, so he was writing about retro computers when they were still new. He has been working in IT professionally since 1994 and has specialized in vulnerability management since 2013. He holds Security+ and CISSP certifications. Today he blogs five times a week, mostly about retro computers and retro gaming covering the time period from 1975 to 2000.