HP-3Com: 3 Things To Chew On

By Chad Berndston

Most solution providers agree that Hewlett-Packard Co.'s pending acquisition of 3Com Corp. will put pressure on rival Cisco Systems Inc. and further shake things up in the already quaking networking and data center environment.

But just how much pressure is another matter, and one that according to VARs will depend on how HP leverages what it's buying--and how the channel gets to benefit from that leverage.

Here are three points to consider:

What Does HP Gain From 3Com And What Will It Keep?

At the outset, the $2.7 billion proposed acquisition would give HP access to 3Com's H3C core and edge switches--an immediate bolstering of the lower-end HP ProCurve portfolio--and TippingPoint, 3Com's highly regarded network security brand.

Buying 3Com also instantly extends HP's reach into some of the most explosive growth markets in the world, namely China, and while there are portfolio integration concerns, most VARs and analysts agreed that HP and 3Com wouldn't have too many cultural differences impeding that integration. Furthermore, HP and 3Com are both strong in key verticals like education and state and local government. Combined, they're a powerhouse.

But beyond the H3C cores, TippingPoint intrusion prevention and potential overlap concerns with HP's existing portfolio, there are two other areas where HP also stands to compete: 3Com's voice/IP products and the low-end switches and routers it provides through OfficeConnect.

Both areas give it new fronts against Cisco and other telephony and networking gear players, VARs said.

"They [HP] had nothing in voice and now they're going to have something. Whether they treat it with respect or let it dangle like 3Com has for a while is the question," said Glenn Conley, president and CEO of Metropark Communications, a St. Louis, Mo., solution provider. "HP is definitely not a telephone company, and for that matter, it took 3Com a long time to step up to the plate and say, 'Yeah, we are a voice company' from when it acquired NBX 10 years ago."

"We've been a 3Com reseller since they bought NBX, and since we're also an HP reseller, we're absolutely excited about what can happen," said Mark Essayian, president of KME Systems, a Lake Forest, Calif., solution provider. "3Com's voice stuff is fully virtualized and runs on off-the-shelf servers. HP is huge into virtualization. Why on earth would they possibly throw that out? I mean, if they really wanted a big voice player, maybe they should have looked at Nortel or Mitel or something, but 3Com's underlying architecture for full virtualization is outstanding. That they've divorced the call processing software from the hardware is genius."

Another solution provider who requested anonymity said that 3Com's voice portfolio was "perhaps the most underrated in networking."

"It's an unpolished jewel. Not a diamond, but a jewel," said the solution provider. "Their [3Com's] marketing has always kind of sucked. That's why you never hear about it. This is a jewel for HP if you look at it the right way. There's a lot more in that 3Com portfolio than a lot of its critics will give it credit for."

Added Essayian: "I'll bet M&A experts from HP took a good long look at that and said, 'Hmmm, they don't even know what they have here, do they?' "

Less mentioned are 3Com's low-end products through OfficeConnect. But should HP decide to keep OfficeConnect, the line gives HP direct competition with Cisco's Linksys brand for small businesses.

"That stuff works pretty well," said Essayian. "It remains to be seen whether HP wants to compete, but if they keep it, they're up against Linksys and D-Link and a few others. HP isn't dumb, so they're definitely giving it some thought."

Overcoming 3Com's Channel Strife

3Com has spent much of the year trying to convince U.S. solution providers and customers it could overcome a rocky 2008 and reclaim the enterprise presence it once dominated and then lost back in 2000, when it discontinued its CoreBuilder switch line.

3Com's makeover started in May 2009 when the company brought its H3C line from China to other parts of the world. Since then, 3Com has focused on reworking its channel strategy, and in August said it would integrate its H3C products and TippingPoint security tools to create a new network security fabric.

"In North America it's just still not a good story," said Conley. "3Com has dragged their tail and slowed things down here in North America with their focus clearly elsewhere. We've seen virtually no new product releases here for the longest time, and then all of a sudden they poke their heads out of the sand and said we're coming back. It makes you sad sometimes, actually. 3Com back in the '70s and '80s was an R&D engineering feat. It was gorgeous. What's HP going to do with that now that those memories are so old?"

For the moment, said VARs, 3Com is saying the right things and not pretending the acquisition won't affect its channel business.

"The 3Com guys are giving us a lot of assurance, which is generally what you'd expect for now," said Don Gulling, president of Verteks Consulting, an Ocala, Fla., solution provider. "We kind of went through this a little with the Bain thing, but that was equity buying 3Com. For us, we love HP and we still love 3Com, so the combination is going to be altogether better."

HP's marketing strength can only help 3Com, some solution providers argued, especially given its struggles to market itself.

"Maybe you can get a seat at more tables with 3Com gear now," Gulling suggested. "And maybe HP will now get a seat at more tables that served only Cisco before."

How Will The Competition Respond?

With some exceptions, it's been Cisco pushing the aggressive rhetoric in the ramped-up battle with HP. Thanks to Cisco's Unified Computing System, Cisco has also been advancing on much of HP's data center territory all year.

The 3Com buy shifts that aggression back to HP, said solution providers. Whether an HP-3Com networking portfolio will truly throw a scare into Cisco, however, depends on how HP positions its new gear.

"Cisco kicks everyone's rear end by being the marketing master. That's how it's usually gone in networking," said Essayian. "But now Cisco has a heavyweight contender in the ring with them. And it's someone that has as hard a right punch as they do."

In an interview with Wendy Bahr, Cisco's North American channel chief, CRN asked about HP's 3Com bid and what it meant to Cisco.

"Under the leadership of John Chambers, we don't usually focus on on the competition so much as our customers. But we don't dismiss the competition either," said Bahr. "It just makes us better--it drives our focus and our execution. In my opinion, HP's intent to acquire 3Com is quite the endorsement of the network being at the center of everything and driving all platforms of communication and collaboration. It's flattering. We pay more attention to our commitment to the channel. Obviously when something like this happens it makes for interesting times, but that doesn't change our philosophy."

Other competitors had their say as well.

"HP's bid to acquire 3Com means it gains SMB-grade switching, IP telephony and security products," said Paul Hooper, chief marketing officer for Extreme Networks, in an e-mailed response to CRN. "However, this appears to introduce large amounts of overlap in the two companies' solutions and channels. As with the ProCurve products, 3Com has been challenged to scale into larger enterprises and data centers. Assuming the acquisition completes, Extreme Networks remains confident in the benefits of our differentiated solutions. Our single operating system, ExtremeXOS, scales from the network edge, through the core and into the data center. This delivers the stability, simplicity and reliability essential for the market." Some VARs were a little surprised that HP chose 3Com at all with so many other potential targets.

"I'm a little surprised HP didn't buy someone like Juniper," said one solution provider who asked not to be identified. "Don't get me wrong, I see how 3Com makes sense and I definitely see the appeal of TippingPoint, but Juniper is ripe. So, for that matter, is a ShoreTel, which HP could scale up, maybe, to get it more awareness."

Juniper came up frequently in interviews with solution providers. While Juniper recently declared it would be focusing more on research and development than potential M&A, a number of solution providers continue to question that strategy, saying it hurts Juniper's ability to compete with HP and Cisco.

"Juniper has every feature you could possibly pack into a product, and performance to boot," said Gulling. "Maybe they acquire or buy somebody like a D-Link or an Extreme [Networks]. There's really no one else left. Ethernet switching and routing is getting commoditized--you're seeing fewer choices and better scaling. There's no better mousetrap in switches, which is why the HP-3Com thing makes even more sense. It's about scale. Cisco is at a disadvantage there because their stuff is hugely expensive."

Juniper did not respond to a request for comment.

Regardless of the outside competition, say VARs, a price war between Cisco and HP is, in the words of one solution provider, "pretty much inevitable."

"Cisco's been acquiring like mad, but I don't know if it's been buying the right people," said one provider. "But HP can totally blow it by not seeing the potential in 3Com's stuff, blending in a few things, and calling it a day. If they start undercutting each other on everything we sell, the channel is going to suffer. If we have to chose sides, the channel is going to suffer."