Chipcom

» see chipcom.com as it lived, on the wayback machine

~ the obit ~

Chipcom sold empty boxes. A chassis hub is a steel frame with a backplane and a row of vacant slots, and you bought one because you did not yet know whether the floor above you would end up running Ethernet or Token Ring, and this way the decision could be deferred into a card you had not purchased yet. The ONline System Concentrator arrived in 1990, the larger ONcore in the first quarter of 1994, and between them they took the company from $34 million of revenue to $267.8 million in four years.

It was incorporated in Delaware in August 1983 and worked out of 118 Turnpike Road in Southborough, Massachusetts, which put it on the same stretch of Route 9 as a good share of the networking industry of the period. The initial public offering came in May 1991. Nobody seems to have written down who founded it: the prospectus filed when 3Com bought the company sets out a long corporate history and names no founder at all, and the staff, who called themselves Chippers, left no list either.

I was eleven in October 1995, and no modem would come into our house until 1998. The people buying Chipcom's equipment were deciding how a bank branch in one city would reach a mainframe in another, and they made that decision by buying a frame and filling it slowly over several budget years. By the time I saw equipment like it in a university building in Ankara, the badge on the front said 3Com, and the reason it said 3Com is below.

~ the rap sheet ~

~ the one customer ~

Chipcom started selling through IBM under a set of alliance agreements in the last quarter of 1992, and the numbers that followed are worth writing out. Sales to IBM were $34.0 million in 1993, or 21.2 percent of revenue, and $102.4 million in 1994, by which point they were 38.2 percent. The first half of 1995 came in at $47.2 million, still very nearly thirty percent of everything the company sold.

Then look at how that half-year splits. The first quarter of 1995 was $30.6 million and the second was $16.6 million. One reseller cut its purchases roughly in half inside three months, and because that reseller was more than a third of the business there was nothing elsewhere in the company large enough to absorb it. Five securities class actions were filed against Chipcom and two of its officers; they were consolidated in Massachusetts and dismissed without leave to amend on 1 May 1996, by which point the company being sued had been gone for more than six months. The plaintiffs appealed anyway.

~ the exchange ratio ~

The merger agreement is dated 26 July 1995 and 3Com announced it the following day. The price quoted at the time, about $775 million, was not a price in the ordinary sense: shareholders got 0.53 of a 3Com share for each Chipcom share, and $775 million is what that exchange was worth against 3Com's closing price on 26 July. Wikipedia carries $700 million, which is the figure the newspapers used; the filer's own number is the larger one.

It closed on 13 October 1995. About 18.2 million 3Com shares went out, options over another 2.4 million were assumed, and the whole thing was accounted for as a pooling of interests. Chipcom had turned over roughly $312 million in the preceding twelve months and employed 918 people as of 31 July, of whom 776 were in North America, 89 in Europe, 31 in Israel, 19 around the Pacific and 3 in South America.

~ what 3Com did with it ~

3Com took a $69.0 million acquisition charge in the quarter the deal closed, and the breakdown is unusually frank about what buying a competitor means in practice. The single largest line, $37.8 million, was the cost of eliminating duplicate and discontinued products. Another $5.1 million covered severance for about eighty people whose jobs now existed twice. More than half the charge, in other words, went on unbuilding the thing that had just been bought.

Chipcom's own website outlived the company by years. The homepage sat there at a steady thousand-odd bytes through at least February 1999, carrying one sentence in capitals saying that 3Com had completed the acquisition on 13 October 1995, and one more explaining that Chipcom Corporation was now known as the Integrated Systems Division within 3Com's Network Systems Operations organization. That is an unusually literal tombstone: the dead company's address on the web, still answering, still giving the date and the new owner. The domain stopped resolving long ago.

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