HP Takes On Cisco With 3Com Acquisition

Hewlett-Packard is adding to its already strong networking capabilities by buying 3Com for $2.7 billion.

HP officials announced the deal 11 November, saying the acquisition will give HP an edge to data centre networking story and feed into its push for converged data centre solutions through HP’s Converged Infrastructure strategy.

“Companies are looking for ways to break free from the business limitations imposed by a networking paradigm that has been dominated by a single vendor,” Dave Donatelli, executive vice president and general manager for enterprise servers and networking for HP, said in a statement. “By combining HP ProCurve offerings with 3Com’s extensive set of solutions, we will enable customers to build a next-generation network infrastructure that supports customer needs from the edge of the network to the heart of the data centre.”

The move will put HP in a strong position to compete with Cisco Systems in the increasingly competitive networking space, and also will help HP build its unified communications and collaboration capabilities, said Steve Schuchart, an analyst with Current Analysis. Depending on the data being looked at, HP ProCurve and 3Com were Nos. 2 and 3 in the networking space.

“Together, they are clearly No. 2 in the market,” Schuchart said, noting that the ranking includes everything from revenue to ports. “We’re seeing a fairly large consolidation in the market.”

The deal will give HP capabilities in a number of areas in which the company was lacking, he said. Both 3Com and HP have been strong in the small and mid-size business networking space, but 3Com will now give HP an enterprise data switch portfolio that it needs to better compete with Cisco.

“They didn’t have that big core switch,” Schuchart said. “They never had.”

In addition, HP will acquire 3Com’s TippingPoint networking security business, which will bring high-end security capabilities to HP’s networking business.

Along with the networking products, HP will be getting 3Com’s VoIP (voice over IP) products, which Schuchart said have been popular in the SMB space.

“This gives HP a phone system,” he said.

Adding a VOIP offering to HP’s Halo telepresence and video conferencing products will also expand HP’s UCC (Unified Communication and Collaboration) capabilities.

“This puts HP in a much better position against Cisco,” Schuchart said. “Overall, this is going to be a big opportunity.”

Through 3Com’s H3C business, HP will also gain a larger presence in the growing Chinese market.

In another challenge to Cisco, Randy Mott, executive vice president and CIO at HP, said HP – a customer of Cisco—will now outfit its entire global business with HP/3Com networking products.

“We are confident that we can run our entire global business of 300,000-plus employees, including our next-generation data centres, entirely on the new HP networking solutions,” Mott said in a statement. “Based on our experience and extensive testing of 3Com’s products, we are planning to undertake a global roll-out within HP as soon as possible after the completion of the acquisition.”

The boards of directors for both companies have approved the deal, which HP officials said they hope to close in the first half of 2010.

The deal comes six months after 3Com re-entered the worldwide networking market. 3Com had exited the global enterprise space more than five years ago to focus on its SMB products, but announced at the Interop show in Las Vegas in May that it was getting back into the game on the strength of its H3C business in China.

HP yesterday released preliminary fiscal fourth-quarter numbers. HP officials say revenues for the quarter will be 12 percent higher than the previous quarter, but 8 percent less than the same period last year. HP is scheduled to release final quarterly figures Nov. 23, but released the preliminary numbers Nov. 11 to open communications with investors.

“Solid execution drove exceptional performance for HP this quarter, fuelled by significant growth in China,” HP Chairman and CEO Mark Hurd said in a statement. “We are delivering on our strategy and are well positioned going into 2010.”

According to HP, the company generated $30.8 billion in revenue, which was a significant jump over third-quarter figures but an 8 percent drop over the same period last year.

Looking forward, HP is projecting fiscal first-quarter 2010 revenues of $29.6 billion to $29.9 billion, and full fiscal year revenue of $118 billion to $119 billion, a jump from previous estimates of $117 billion to $118 billion. However, those numbers don’t include any impact from the 3Com acquisition.