News

HP Strikes at Cisco with 3Com Acquisition Deal

HP will pay $2.7 billion in cash in an agreement reached by the boards of both companies.

• By Jeffrey Schwartz
• 11/12/2009

Hewlett-Packard said late Wednesday it will acquire 3Com for $2.7 billion in cash in an agreement reached by both companies' boards.

3Com, which in the 1990s put Ethernet networking on the map, is a much smaller player today, but nonetheless broadens HP's reach beyond the edge of the network. HP said the acquisition of 3Com is aimed at extending its strategy of offering converged datacenter solutions.

The deal brings together HP's ProCurve product line, which primarily services the edge of LANs, with 3Com's strength in core network switching and routing, said David Donatelli, HP's executive vice president and general manager for servers and networking, in a conference call Wednesday.

"We believe today's acquisition totally transforms the enterprise networking marketplace," Donatelli said. "It provides HP with a comprehensive solution in networking from the edge to the heart of the datacenter."

More than 50 percent of network ports shipped come from Cisco, said Yankee Group analyst Zeus Kerravala. Once HP takes on 3Com's product line, it will have a 20 percent share, Kerravala said. "It creates a credible No. 2 networking vendor.  The industry hasn't had a credible No. 2 since the mid-1990s with Nortel. While that's not going to cause Cisco to lose many deals, it will create some competitiveness that did not exist before."

3Com will help HP extend its networking portfolio into the datacenter, said Ovum analyst John Madden. "What 3Com really lacked was a brand," Madden said. "HP has a strong brand and distribution channel but their product line did have some holes. While 3Com doesn't fill all those gaps, it certainly goes a long way."

Some 3Com products that fill holes, Madden said, are 3Com's TippingPoint intrusion-detection products, Voice over IP (VoIP) offerings, and routers.

The announcement comes just one week after HP said it intends to expand its networking footprint with what it called its Converged Infrastructure Architecture. 3Com in May extended its H3C offering with datacenter management software and its new high-end S5800 switch, which supports up to 192 10-gigabit ports or 640-gigabit Ethernet ports.

"It leverages a common operating environment and open architecture, so it has the ability to play with an existing network that's already in place today [and] it offers unified management across the entire suite," Donatelli said.

By acquiring 3Com, HP takes out a significant competitor, said John Marks, a longtime HP partner and CEO of Coach Capital, a company that provides leasing of IT equipment. Marks said HP channel partners should welcome having 3Com in the mix. "I think if you're a solid partner, it only helps because of the back-end programs HP has that are based on increasing revenue," he said.