Hewlett-Packard is to acquire 3Com for €2.7bn, making it the
dominant force in the strategically important Chinese networking
market and increasing the intensity of its battle with Cisco
Systems.
How times have changed: around three years ago mutterings among
partners were that HP was even considering selling its ProCurve
networking division, but the unit has since got its act together
and is a fast-growing and credible threat to Cisco.
"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," said Dave Donatelli, HP
vice-president of enterprise servers and networking.
There can be no doubt that HP will use 3Com's lower cost
structure in China to give Cisco a bloody nose by at the least
denting product margins through increased competition.
However, the acquisition is also tied to HP's Converged
Infrastructure strategy; drawing servers, internal storage,
management software, power and cooling and networking into one
infrastructure.
"One single stack of technology doesn't really make a next
generation datacentre, and that is why it is really important to
understand that the acquisition and HP's move further into the
networking market is all part of our larger strategy."
The biggest questions HP has faced from networking customers
have centred on its inability to play across the entire network
infrastructure said Donatelli.
"This acquisition enables us to do that, adding core switching,
routing and security products," he said.
According to figures from Context's distribution panel across
the top economies in Europe, €3.2bn of HP kit was sold via the
channel in the first half of 2009, compared with €28m from 3Com,
but the move made sense, the analyst said.
Context senior partner Jeremy Davies said, "On the one hand HP
takes out a competitor, gains the expertise and customer base from
3Com to better address the threat from Cisco, and on the other,
3Com no longer has to battle it."
In its heyday, 3Com gave Cisco a real run for its money in the
enterprise but following its sudden decision to exit the segment in
2001 to focus on SMEs, many resellers lost faith in the vendor.
Chinese firm Huawei and VC Bain Capital last year bid $2.2bn for
a 16% stake in 3Com, but the deal hit the buffers amid suggestions
that the US Committee on Foreign Investment had security
concerns.
The price HP paid reflects the recessionary climate, which has
obviously played out through 3Com's results, most recently in the
fiscal first quarter 2010, when profits slumped 90% to €7.5m and
sales fell 15.2% to €290.5m.
The deal at €7.90 per share, financed by HP's existing cash, has
been approved by both boards and is expected to close in the first
half of 2010.
HP also used the acquisition of 3Com to highlight preliminary
fiscal fourth quarter revenues of €30.8bn, down 8% year-on-year but
up 12% sequentially.
HP CEO Mark Hurd said its performance was "solid" and "fuelled
by significant growth in China".
The purchase of 3Com, whose products are installed in 300 of the
top 500 enterprises in China as well as accounting for around 32%
of the Ethernet switching market there, will make the country even
more vital to HP.