HP Takes Gloves Off In Fight With Cisco With Plan To Acquire 3Com

HP on Wednesday said it has signed a definitive agreement to purchase 3Com for $2.7 billion. The acquisition has already been approved by the boards of directors of both companies.

With the purchase, HP will be able to extend its networking business beyond its current ProCurve line with an extensive new line of Ethernet switch and router solutions. HP will also get 3Com's H3C enterprise networking portfolio, which is the market leader in the fast-growing China market, as well as 3Com's TippingPoint portfolio of network security products.

It is a deal which will shake up and possibly polarize the data center market, leading to a three-way face-off between HP, Cisco, and Brocade Communications.

The date center market is rapidly moving towards a converged infrastructure in which storage and IP data can be run across a single network, and in which the different components of the data center including servers, storage, and networking are ever-more tightly integrated.

HP's acquisition of 3Com seems to have been triggered by both the new convergence and by the move by Cisco to grab a larger stake in the data center with its USC strategy.

Prior to UCS, server vendors such as HP and IBM were Cisco's primary routes to market. However, with UCS and its new blade server line, Cisco pushed HP and IBM to re-evaluate their Cisco relationship, with HP moving to shore up its ProCurve networking business and IBM moving to strengthen its relationship with Brocade.

Cisco has also been active in the storage business with a new tight relationship with EMC. Cisco, EMC, and VMware early this month unveiled Vblock Infrastructure Packages, a series of pre-configured, pre-tested solutions based on Cisco's Unified Computing System (UCS) and networking switches, EMC's Symmetrix or Clariion storage arrays, and VMware's vSphere server virtualization platform.

EMC is an arch-rival to HP's and IBM's storage business.

Brocade, meanwhile, has become one of Cisco's top networking rivals in the last year or so. Brocade is the leading vendor of storage networking components, and with its $2.6 billion acquisition of Foundry Networks last year is also a major force in that part of the market as well.

Both Brocade and Cisco are working to converge storage and IP data on a single network infrastructure.

Brocade last month also signed an agreement with Motorola to OEM that company's wireless networking technology.

The acquisition of 3Com could indicate the importance of the storage-networking convergence to HP. David Donatelli, executive vice president and general manager of enterprise servers and networking at HP, will now be in charge of a larger networking business.

Donatelli, who was hired by HP from EMC earlier this year, currently does not control HP's storage portfolio because of the terms of his non-competitive agreement with EMC. However, sources close to HP and its solution providers say that Donatelli is expected to officially take over HP's storage business early next year.

Analyst firm Yankee Group, in a research report released Wednesday afternoon, said it believes the acquisition to be a very strategic move for both companies, and gives HP the ability to compete more aggressively with Cisco in the networking market.

Zeus Kerravala, Yankee Group senior vice president, wrote that 3Com is perhaps the most undervalued networking vendor.

"(3Com) has the broadest enterprise portfolio of any company except Cisco—VoIP, switching, routing, wireless LAN, security and some video. But 3Com's biggest challenges have been channel and brand, remnants from when it abruptly exited the enterprise market a decade ago and left a bad taste in the mouths of many network professionals. H-P's strong brand and distribution capabilities can overcome those difficulties and allow it to leverage 3Com's products to create an even more formidable competitor for Cisco," Kerravala wrote.