HP Acquisition Of 3Com Could Threaten Cisco Dominance

Deal will give HP greater reach in China

In addition, HP gets greater access into China with 3Com’s H3C business, which has a number of high-end customers and a talented R&D group.

“The acquisition opens up a cross-pollination opportunity for the two companies,” Ovum analyst Adam Jura said in a research note. “While 3Com has had difficulty entering, and staying within, the North American market, it will likely be able to leverage HP’s strong presence as a more direct way into accounts. … Conversely, 3Com’s strong position within the Chinese market will be a critical element of HP’s acquisition decision.”

“It’s a good fit for HP,” Gartner analyst Mark Fabbi said. “It fills in a gaping hole – core switching in the data centre network – which HP really needed to fill.”

It also separates HP from the rest of the pack that had been chasing Cisco in the $40 billion (£24 billion) networking space, Kerravala said. The Yankee Group had Cisco owning about 52 percent of the market, with HP at 11 percent and 3Com at 9 percent.

“This creates a 20 percent vendor, a significant challenger to Cisco,” he said. “There’s always been a demand [for alternatives] outside of Cisco, but there’s never been a credible contender outside of Cisco.”

Pressure now on for Juniper, Extreme and Brocade

The deal now puts pressure on others in the market to figure out how to deal with the new playing field, and could lead to more consolidation, the analysts said. Some say Brocade Communications Systems will be hurt by the deal, but Kerravala believes Brocade and F5 Networks will be OK, given their focus on the data centre and their list of loyal customers.

Others that have decisions to make include such players as Juniper Networks and Extreme Networks, they said. One vendor isn’t worried about the HP-3Com deal. Stephen Garrison, vice president of marketing at Force10 Networks, said his company’s focus on the data centre will help keep the new larger competitor at bay.

“We have been leading the industry in data centre technology, where port count, power and cooling and space considerations are key to lowering TCO, specifically in virtualized data centre technology,” Garrison said in an e-mail. “For customers that want the absolute leading dimensions of that capability, we think focused companies can deliver leading technology consistently. Larger companies, however, may give you a complete solution, but not necessarily leadership in all dimensions.”

Analysts said that one other company to keep an eye on in all this is IBM. The company in July expanded its partnerships with a host of networking vendors, including Cisco, Juniper and Brocade. IBM officials said such alliances were key to the company’s integrated data centre vision. Kerravala said IBM may have to consider an acquisition in this space.

“They’re trying to figure out what their networking plan is,” he said.

Despite the noise surrounding the HP-3Com deal, Forrester’s Daley warned that Cisco should not divert its attention from what she sees as the real threat to the vendor’s networking dominance—Chinese company Huawei.

“The Huawei threat to Cisco—high quality and low cost will be the pin in the balloon of Cisco’s envious margins—continues,” Daley wrote. “But the threat has not been full throttle because Huawei has misstepped in its penetration of [North American] and European markets. But they are invigorating those markets with renewed energy now.

“Too bad for HP—a Huawei/HP gig with a broad channel would have been really formidable against Cisco.”