HP's planned $2.7bn (£1.6bn) acquisition of 3Com looks set to boost competition in the global networking and data services market, but will it benefit end-users?
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The acquisition, which is due to close in the first half of 2010, has raised concerns that HP will absorb 3Com's networking switch, router and security technology, leaving existing 3Com products and end-users with reduced support.
The deal is central to HP's strategy to offer converged infrastructure to IT departments that brings together servers, storage, management software and networking to challenge rival Cisco.
It will give HP the ability to extend its own products into 3Com's strongest markets in China and South America and to develop new products using 3Com technology.
HP will become a formidable competitor in the enterprise networking market, says Mark Fabbi, analyst at Gartner. "Enterprises will benefit as HP brings new economics to enterprise networking," he says.
Better products, lower prices
IT departments also stand to benefit from increased competition between Cisco and HP. This should lead to better products and lower prices, say analysts.
Having multiple vendors for any given type of product is always a good source of protection, says Dan Kuznetsky, vice-president operations at analyst house 451 Group.
"If one supplier does not offer reasonable upgrades, pricing, terms and conditions, the customer can use the competition to motivate the supplier or simply move to the other supplier," he says.
Under the deal, HP customers should have access to better security through 3Com acquisition Tipping Point and a broader product line with input from the huge R&D facility of 3Com subsidiary H3C in China.
What about 3Com customers?
But some commentators are concerned that the deal could have an adverse impact on 3Com's customers.
"3Com customers are likely to see more funding going into 3Com's products that compete directly with Cisco's offerings, which may mean others see less investment," says Kuznetsky.
This could spell disaster for existing 3Com customers if overlapping products are withdrawn or left unsupported once the deal is finalised, says telecoms equipment maintenance firm Comtek.
Others are more optimistic. HP may not maintain the 3Com brand, but this does not mean 3Com customers will be left in the lurch, says Keith Humphreys, managing consultant at networking analyst EuroLAN.
There will be some rationalisation of the 25% of overlapping products, but HP will probably give 3Com customers an easy transition to existing or new products at economic prices, he says.
This acquisition is good for 3Com end-users because it gives them the reassurance that 3Com has the backing of a big company like HP," says Humphreys.
3Com customers may even be in a position to get concessions if they have products that will be discontinued in the near term, says Steve Steinke, senior analyst at 451 Group.
"HP is likely to be most receptive to proposals for service agreement extensions or hardware upgrades right after the deal goes through," he says.
Adam Jura, senior analyst at Ovum, says Cisco's response to HP's acquisition of 3Com will be interesting to watch.
Cisco is holding in excess of $4bn in cash on its balance sheet, giving it the opportunity to make acquisitions. "Although Ovum does not expect anything immediately, the logical choice would be EMC," he says.
The competition between HP and Cisco will continue to intensify, particularly with the emergence of cloud computing and other network-centric technology. IBM and Dell are likely to pitch in next, providing more choice for end-users.
3Com was a keen competitor with Cisco before the company switched focus away from the enterprise to small and medium-sized businesses in 2001.
The move hurt the business, say analysts, with 3Com's annual revenues now around $1.3bn, compared with Cisco's $36.1bn.
Although it is currently a smaller player, HP is acquiring the technology, expertise and customer bases it needs to challenge Cisco, say analysts. 3Com is also no longer a competitor.
3Com is a leading network supplier in China, with 30% share of the general market, but 80% of government and military business.