HP to acquire 3Com

In a move that will disrupt the networking industry, Hewlett-Packard has entered into an agreement to buy network, switching, routing and security solutions vendor 3Com for a value of approximately US$2.7 billion. The acquisition is intended to round out HP’s already ample offering by expanding its Ethernet switching offerings, adding routing solutions and significantly strengthening the company’s position in China. In addition, HP will gain a large and talented research and development team in China that will drive the acceleration of innovations to HP’s networking solutions.

A press release issued by 3Com dubbed this a move that will “transform the networking industry” and “underscore HP’s next-generation data center strategy” which is built on the convergence of servers, storage, networking, management, facilities and services.

The resulting business outcome will help customers simplify the network, deploy a unique and innovative edge-to-core network fabric for the enterprise and improve IT service delivery capabilities, all delivered with best-in-class price-performance.

3Com has been looking to take a ‘China out’ strategy and this acquisition puts it in a position to significantly accelerate its execution of that strategy by leveraging HP’s customer and channel reach and its investment capabilities. Bob Mao, Chief Executive Officer of 3Com said: “Our extensive product line and innovative technology together with HP’s breadth and scale will expand our global opportunity.”

Randy Mott, Executive Vice President and Chief Information Officer at HP added: “We are confident that we can run our entire global business of 300,000-plus employees, including our next-generation data centers, entirely on the new HP networking solutions.”

“Based on our experience and extensive testing of 3Com’s products, we are planning to undertake a global rollout within HP as soon as possible after the completion of the acquisition.”

“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’s Executive Vice President and General Manager, Enterprise Servers and Networking. [UPDATED]

There has been much speculation in the last few months about the intentions of Cisco with respect to EMC and VMWare, however, the HP/3Com news puts an interesting new spin on things. In a comment this morning, Adam Jura, Senior Analyst for Ovum said: “Ovum believes this steps up the level of competition between HP and Cisco. While it may not be as confrontational as, say, SAP v Oracle (Retek in particular), the implications could potentially be far reaching. HP had already started to encroach upon Cisco’s market with its Procurve product line, however the acquisition of 3Com provides a serious boost to its data center credentials.

“One aspect of the market to watch will be Cisco’s response, and while they acknowledged HP’s move as a verification of their network-centric strategy, there will no doubt be a few murmurs internally. Cisco is currently holding around $4.7bn in cash and equivalents on its balance sheet, although this figure has dropped in recent quarters. It does afford the company the opportunity to make an acquisition, however Ovum does not expect anything immediately. The logical choice would be EMC and as such market rumours continue to abound. Regardless, Ovum expects the competition between HP and the network-dominant Cisco to continue to intensify, particularly as network-centric technology solutions such as cloud computing continue to emerge.”

Jura went on to comment on the future of 3Com as an HP acquisition, saying it “opens up a cross-pollination opportunity for the two companies”.

“While 3Com has had difficulty entering, and staying within the North American market, it will likely be able to leverage HP’s strong presence as a more direct way into accounts [...] Conversely, 3Com’s strong position within the Chinese market will be a critical element of HP’s acquisition decision.”