UTStarcom buys 3Com's Commworks product line

UTStarcom buys 3Com's Commworks product line
DENVER, Colo. — UTStarcom Inc., the China-based internetworking OEM with U.S. headquarters in Alameda, Calif., has acquired the bulk of assets of 3Com Corp. subsidiary CommWorks, for $100 million in cash with no assumption of debt. CommWorks entailed all the products sold into the service provider industry, so the sale of its assets represents 3Com's return to being strictly an enterprise networking company.

The bulk of CommWorks' business represented the former public-networking hardware business of U.S. Robotics Inc., located west of Chicago, which 3Com acquired in 1997. CommWorks had diversified from USR's original base of remote access servers (RAS) and gateways, however, to include softswitches and Code Division Multiple Access packet data serving nodes.

Real estate, some employees, and many older products will not be part of the assets acquired by UTStarcom. Equipment, inventory, patents, contract agreements, licenses, and selected working capital will be included, but accounts receivable and accounts payable are specifically excluded.

Hong Lu, chief executive of UTStarcom, said in a financial analysts' conference that the CommWorks product line will "almost double our market opportunity," giving UTStarcom an additional $25 to $30 million in each quarter for the rest of 2003, and $30 to $35 million per quarter in 2004.

Lu said that in CDMA businesses, the CommWorks packet data server product will allow UTStarcom to penetrate KDDI networks in Asia with a voice over IP product, which the company had not been able to enter before. RAS products from CommWorks may not show high growth, he said, but they represent a captive market with a very loyal customer base.

RAS products can complement UTStarcom's DSLAM line, a product category in which UTStarcom holds the second highest market share globally behind Alcatel.

3Com chief executive Bruce Claflin said that the sale not only strengthens 3Com's balance sheet, but gives 3Com "a sharp focus on meeting the needs of the enterprise customer." The deal is expected to close in 60 to 120 days.