Cisco Clears the Way for 3Com Relief Rally - TheStreet

Cisco Clears the Way for 3Com Relief Rally

Cisco prepares to resolve a patent dispute, clearing the way for 3Com to keep selling low-priced gear.
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A small step for

Cisco

(CSCO) - Get Report

means a giant leap for

3Com

(COMS)

-- at least this once.

Wednesday brought news that networking-industry juggernaut Cisco was near a settlement of a closely watched patent dispute with China's

Huawei

. The proposed agreement merely clears up a nagging distraction for Cisco, which continues to focus on

restarting its sputtering growth engine. But it could do far more than that for struggling 3Com, a laggard in a tight market that has been searching for a profitable niche.

Shares of 3Com jumped 9% Wednesday as investors applauded a deal that seems to clear the way for the company to keep selling low-priced network gear through a joint venture with Huawei. That venture has been a key to the stock's 2003 rise after the Marlborough, Mass., company spent years wandering the networking wilderness.

"This is a positive for 3Com-Huawei," says CIBC World Markets analyst Steve Kamman, who has no rating on 3Com and a hold on Cisco. "It basically gives them a clean bill of health."

Cisco had accused the Chinese networking gearmaker Huawei of copyright infringement in a Texas federal court lawsuit in January. Huawei said Wednesday that it would stop selling the disputed products and make necessary modifications to the software that Cisco claims infringes on its patents. Cisco has asked for a six-month stay of the lawsuit, and in a joint statement Cisco and Huawei said the move could lead to the end of the spat.

Huawei said Wednesday that it made the necessary modifications to the disputed products that Cisco claimed infringed on its patents. A third party is expected to examine the gear to verify the changes.

Despite its early prowess in so-called Ethernet technology, which has become the industry standard for connecting big companies' computer systems, 3Com watched as Cisco put a headlock on the computer networking business during the go-go 1990s. After spinning off

Palm

, its handheld device software unit, in 2000, 3Com largely faded from prominence. But this year, with the help of new products from overseas manufacturers such as Huawei, 3Com has been more of a force in the low-priced gear market.

In March the two companies formed 3Com-Huawei to sell computer networking products such as routers and switches to businesses.

Analysts say Cisco's domination of the Net gear market, with roughly 80% market share, isn't under any immediate threat from cheaper equipment from rivals including 3Com, Huawei and

Dell

(DELL) - Get Report

. But an increasing presence of lower-priced competitors will likely chip away at more medium-price players such as

Extreme

(EXTR) - Get Report

, says Kamman, who has a sell rating on the stock.

3Com shares were up 54 cents to $6.45 in early trading Wednesday.