HP challenges Cisco with 3Com purchase

Hewlett Packard Co.’s announcement Nov. 11 that it plans to buy network equipment maker 3Com Corp. for $2.7 billion in cash is largely seen as both a smart move by the giant computer maker and a salvo fired across the bow of its chief rival, Cisco Systems Inc.

Bloomberg News said the purchase counters moves Cisco has made this year to become the top supplier of networking and computer equipment for data centers.

“This sets the stage for a clash of the titans,” said Warren Suss, president of Suss Consulting, adding that the purchase puts HP on a collision course with Cisco, “a force to be reckoned with in the federal space.”

HP is an extremely strong player in the federal sector, Suss told Washington Technology. “But their strength is centered around their computing capabilities, and has extended into the storage field. This [acquisition] gives them a much wider range of communications gear to offer as a total solution for the federal customer.”

Suss said the government also is a winner because, unlike in the past when one company dominated one niche, now there are companies competing across the board. In addition, the acquisition will open doors for 3Com across the government sector.

“It’s definitely positive for HP,” Mark Fabbi, of Gartner Inc., told the Wall Street Journal’s Market Watch. “3Com has a broad portfolio [of products] and is very complementary with HP. It makes for a clear No. 2 player in networking,” he said.

The merger “will transform the networking industry and underscore HP’s next-generation data center strategy built on the convergence of servers, storage, networking, management, facilities and services,” HP said in its announcement.

The company added that acquiring the Marlborough, Mass., company “will dramatically expand its Ethernet switching offerings, add routing solutions and significantly strengthen its position in China.”

In 2007, 3Com acquired H3C Technologies Co. Ltd., which originally was a joint venture with China’s Huawei Technologies. The merger gave 3Com a large market presence in China, and a significant networking market share in Europe, Asia and the Americas.

“In addition, the combination will add a large and talented research and development team in China that will drive the acceleration of innovations to HP’s networking solutions,” according to the HP statement.

“3Com is the best-kept secret out there,” Fabbi said, adding that the networking company recently announced several large contracts in Europe, including for France’s postal service and railroad system.

“What’s happening in the large enterprise players – Cisco, Microsoft, HP and IBM – is they are all clearly getting into each other’s business,” said Andrew Davis, senior partner and communications analyst at Wainhouse Research, of Duxbury, Mass.

“Each of them is developing a broad portfolio of enterprise solutions for conferencing and collaboration, and in this case [for] data centers and networking,” he said.

The boards of HP and 3Com have approved the deal, which is expected to be completed during the first half of 2010.

HP, of Palo Alto, Calif., ranks No. 12 on Washington Technology’s 2009 Top 100 list of the largest federal government prime contractors.