U.S. Robotics rises from the ashes

They are the names spoken of with a respect that borders on the reverence hockey fans reserve for the Original Six. Digital Equipment Corp, Amdahl, Bell Northern Research.

Anyone who’s anyone in the industry has either worked for them, got fired from them or once negotiated with them as IT

spending took off. U.S. Robotics is on that list too, but it has a special connotation. It is the high-tech success story that got away.

A decision by Platinum Equity Partners last week to acquire U.S. Robotics (USR) for an undisclosed amount may be the oddest bit of industry consolidation to hit the networking sector this year. Platinum’s chief executive, Tom Gores, said he wants to use the firm as a “platform” for future buyouts that he hopes will add up to the next big player in the wired and wireless electronics market. In other words, Platinum is primarily buying the USR name, a long-shot move given the antiquated nature of the USR brand.

Long before HP bought Compaq or Compaq bought Digital, the acquisition of USR by 3Com for US$6.6 billion rocked the industry. The results should have been even more impressive. At the time, in 1997, the combined entity was to create a networking powerhouse with more than US$5 billion in annual revenues, more than 12,000 employees, and a presence in some 130 countries. The synergies seemed obvious, pairing USR’s X2 56 Kbps modem technology for high-speed Internet and WAN access, with 3Com’s Fast IP technology for high-speed LAN switching.

The problem, in a word, was Cisco Systems, which continued to acquire smaller firms at the same breakneck speed it does today and remained much larger than its rival, integrating its purchases more deftly than 3Com managed to do.

USR, whose reputation was cemented among BBS operators with the Courier Dual Standard modems, may not have been the ideal merger partner it first appeared to be, either. Though its modems were enjoying significant success at retail, surely someone in its R&D department saw the writing on the wall – that OEMs would start building modems into desktops and that phone companies would eventually move into the high-speed Internet business. Why else would USR have made the gamble of buying Palm Inc. in 1995, except to position itself for an emerging category of mobile computing devices?

3Com’s later decision to spin off USR was essentially an admission of failure, just as it wisely realized that Palm was the kind of company that should be running under no one’s banner other than its own.

What remains of USR today, and what Platinum bought, is a 120-person firm that continues to hold a large proportion of the market share for analogue modems, which is kind of like being the most popular fixed telephone provider in a room full of VoIP companies. Its obnoxious attempts to impose its X2 technology on the industry instead of the rival K56Flex – a standards battle that was sometimes likened to the VHS vs. Beta standards battle in the VCR industry – seems irrelevant today, as does its effort a few years ago to enter the already-crowded NIC and wireless router markets.

Like other industry heavyweights that were started out of a garage, USR once had all the hallmarks of a firm that would be on top for decades. Its name was taken from the fictional manufacturer described in the robot stories by Isaac Asimov as “the greatest company in the known galaxy.” Tom Gores’s plans for USR may be less ambitious, but only slightly: to make the firm as great as it once seemed it could be.

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Jim Love, Chief Content Officer, IT World Canada

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Shane Schick
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