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December - 2009 - issue > Tech Tracker

HP Invades Cisco’s Networking Turf, Acquires 3Com

Eureka Bharali
Monday, November 30, 2009
Eureka Bharali
The invasion of the networking giant Cisco into the server market in January posed a challenge to the server market leaders including HP and IBM. 10 months after the networking bellwether’s venture into the server space, HP has replied back through foraying into the networking turf. History repeats, as HP imitates the steps of Cisco, to foray into the market. The company hasn’t expanded its own R&D facility to include the network business; rather it delved into a shopping spree, a step similar to that Cisco took 10 years back, by buying IBM’s network solutions. There were several options for HP to combat Cisco, including Brocade and Polycom; however, it chose 3Com, the networking infrastructure firm, which has a strong market presence in China, with 32 percent share of China’s Ethernet switching market.

For the acquisition, HP will pay 40 percent premium ($7.9 a share) to make 3Com central to its networking strategy, which leads to a whopping amount of $2.7 billion. The trends in 3Com during 2009 coincidentally helped to add value to HP’s networking foray. The ‘Out of China’ strategy of 3Com to turnaround its revenues from the ‘Rest of the World’ stood stranded not due to the unacceptance of the product portfolio, but because of the insufficient cash flow and the lack of scalable resources. Married to HP, the networking firm’s products will get an excellent reach to enterprise and SME networks, as companies look to reduce total cost of ownership across the board. The acquisition will also help HP’s Ethernet switching offerings to add routing solutions and significantly strengthen the company’s position in China, the fastest growing market for networking solutions, according to Gartner.

A quick decision to compete with Cisco may, however, prove expensive for HP’s CEO Mark Hurd. Unlike IBM that proved to be a boon for Cisco, 3Com’s product efficiency is still under question. Sluggish sales, a weak reseller channel, and an uninspiring product lineup of 3Com are caution signals that may backfire, pulling HP down.

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