3Com sells CommWorks unit for $100m to UTStarcom

3Com on Tuesday said it agreed to sell its telecommunications equipment business to UTStarcom Inc. for $100m in cash and would...

3Com Corp. on Tuesday said it agreed to sell its telecommunications equipment business to UTStarcom Inc. for $100 million in cash and would focus on making equipment for corporate and institutional networks.

Terms of the transaction call for 3Com to maintain a license for all patents and intellectual property transferred to UTStarcom, an Alameda, California-based telecommunications equipment vendor. Following the sale, Santa Clara, California-based 3Com, a rival of networking industry leader Cisco Systems, said the deal would free it up to go after more complex and higher-margin deals in providing equipment for data and voice transmission.

3Com president and chief executive Bruce Claflin said the $100m from the sale of its CommWorks business would help the network gear maker bolster its balance sheet and promised a "laser-like focus on meeting the needs of the enterprise customer." So-called enterprise customers including corporations, government agencies and universities have been a more stable market for makers of network equipment for directing and managing online traffic amid the severe slump in capital spending by telecom carriers.

Getting what they need

"We believe doing this basically allows customers a second choice to Cisco," Anik Bose, 3Com's vice president of business development and strategic planning told Reuters. "We'll focus on markets where we've been strong, like government, health care and education." UTStarcom said the acquisition of 3Com's CommWorks division was expected to close within 120 days and would add slightly to fourth-quarter earnings. UTStarcom president and chief executive Hong Lu said the CommWorks acquisition will add to his company's customer base and place the company in new markets outside China, where it supplies carriers China Telecom and China Netcom.

"CommWorks will give us access to blue-chip customers around the world via its long-term relationship with 17 of the world's top 20 service providers, including AT&T, Sprint and Verizon," Lu said. Shares in 3Com rose in after-market trade to $4.40 from their close at $4.29 on Tuesday, while shares in UTStarcom rose to $18.86 following their close at $18.67. Both stocks trade on the Nasdaq stock exchange.

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