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November 12, 2009

HP moves for 3Com in $2.7bn deal

Sets sights on Cisco battle

By Steve Evans

Computer giant HP has announced it is acquiring network equipment firm 3Com in a deal worth $2.7bn (£1.6bn).

3Com specialises is switcher and router products and the move will boost HP’s network offering as it looks to tackle Cisco in the ‘all in one’ data centre battle. HP’s Converged Infrastructure combines servers, storage, networking, management, facilities and services in one and is in direct competition with Cisco’s Unified Computer System.

“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, executive vice president and general manager, Enterprise Servers and Networking, HP.

“By acquiring 3Com, we are accelerating the execution of our Converged Infrastructure strategy and bringing disruptive change to the networking industry. By combining HP ProCurve offerings with 3Com’s extensive set of solutions, we will enable customers to build a next-generation network infrastructure that supports customer needs from the edge of the network to the heart of the data centre,” Donatelli added.

Adam Jura, a senior analyst with Ovum said that the deal has far reaching consequences for the networking industry and the Cisco/HP battle in particular. “This steps up the level of competition between HP and Cisco,” he said. “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 centre credentials.”

3Com is particularly strong in China and the acquisition will improve HP’s position in that market. It will also pick up 3Com’s extensive R&D facility there.

“3Com’s strong position within the Chinese market will be a critical element of HP’s acquisition decision. HP will hope to leverage 3Com’s market presence to align its own technology offerings – in particular, data centre technology,” said Jura. “3Com also has good engagements with key industries, including energy, transportation, and education at an enterprise level. These will be attractive industries for HP in China given their increasing level of government funding.”

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Jura also speculated that Cisco may retaliate with a purchase of its own. The firm has about $4.7bn in cash reserves so is in a strong position to buy, although Jura said he does not expect anything to happen soon.

“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,” he said.

The deal has been approved by both boards and is expected to close in the first half of 2010.


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