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Some HP Partners Upbeat, Others Wary About 3Com Acquisition

CRN Staff

Will Hewlett-Packard's proposed acquisition of 3Com put more pressure on channel partners of HP and Cisco to pick one vendor over the other? That's a worry for some top partners of both technology giants, while other partners have clearly chosen a side and are not shy about saying it.

For their part, HP and 3Com insisted Wednesday that the proposed merger was actually a victory against vendor lock-in.

"If it's part of your strategy to have a proprietary architecture, then, yes, it's locking people into one brand," said Marius Haas, an HP senior vice president and general manager of the ProCurve Networking unit. "But if you're standards-based as we and 3Com are, then it's not locking in anybody."

Haas and 3Com COO Ron Sege, hosting a Wednesday press conference to discuss Palo Alto, Calif.-based HP's proposed $2.7 billion deal to acquire 3Com, returned several times to the difference between their open-standards approach to networking and what Haas called Cisco's "proprietary stack of hardware."

But some partners of HP and San Jose, Calif.-based Cisco were less sanguine about the proposed deal, saying the pressure to show total loyalty to one vendor over the other is reaching a boiling point.

One large HP and Cisco solution provider partner, who did not want to be identified, said he sees partners being caught in the sales crossfire and hurt by a networking product price war. What's more, he said, partners are likely to face significant pressure in the sales trenches to line up behind one or the other vendor.

"You've got two big gorillas going at it, competing for the same business," he said. "As a midmarket VAR I'm just trying to avoid getting stepped on."

Cisco's 65 percent gross margins are likely to drop as HP moves to aggressively take networking share away from Cisco, said the source. That kind of price war means partners are likely to feel the squeeze.

"This is a very big deal with two of the biggest and most powerful players in the channel and the industry," he said. "In a battle it is better to play offense than defense. This move by HP is going to require Cisco to play more defense than they ever have before."

Another solution provider, Mark Gonzalez of Nth Generation, criticized Cisco for even entering the server and storage business in the first place with its Unified Computing System (UCS) offering. Gonzalez, president of the San Diego-based HP partner, suggested that UCS served to wake up some sleeping data center giants that Cisco may not enjoy battling.

"Cisco has decided that it wants to dance with the elephants and it's about ready to find out what it feels like to be sat on by an elephant," he said. "Cisco is about to find out what it feels like to have someone who will compete with them across the board and turn their 65 percent margin business into a commodity. I'm not sure that Cisco knows how to live in a 20-to-30 points world, whereas HP has been thriving in it for years."

Cisco itself did not comment directly on the proposed deal, but in a Wednesday blog post addressing "industry consolidation," a Cisco executive wrote that "acquisitions in our industry only validate the fact that networking is becoming the platform for all forms of communications and IT," and that Cisco remains "very confident" in its business strategy.

Next: HP's 'Foot Soldiers' Weigh In


John Convery, executive vice president for Denali Advanced Integration, an HP Platinum partner and also a Cisco partner, is one solution provider who has picked a side between the two vendors. Convery said flatly that Redmond, Wash.-based Denali is aligning its business around HP. In fact, he sees HP as the undisputed winner in its converged networking war with Cisco and described Denali as a "foot soldier" for HP.

"We have lived and died with HP for years," he said. "It's time to double down. It is not time to play games here. This is a very serious business. HP's PartnerOne and Elite programs offer best-of-class profitability and opportunity for us."

"It's exciting times," added Convery of the HP-versus-Cisco sales battle. "Hang on to your seat." Convery said HP is aggressively rallying its partners and sales force to "take their message to the customer and fight the good battle."

Count Geoffrey Lilien, CEO of Larkspur, Calif.-based Lilien Systems, as another HP partner pleased with the deal.

"This verifies HP's position as the only company to offer server, storage, software, networking, and services," Lilien said. "HP knows how to play a low-margin game, especially after they got Compaq, or Compaq got them. Heck, they can slug it out with Dell all day long in the PC market. HP can excel in a 20-percent margin world."

HP's Haas said the proposed 3Com acquisition marked "a paradigm shift taking place in the networking space."

"It does transform the enterprise networking space. It does provide this end-to-end solution, from the network edge all the way to the heart of the data center," he said.

According to Haas, the HP-3Com combination would be able to immediately go after $30 billion of what he claimed was "a $40 billion total addressable market" for the two companies' product portfolios.

Sege, 3Com's COO, said 3Com would be taking the "necessary steps" to integrate his company's channel partners into the HP fold and that the move would be "great for partners" in the coming months.

Bob Djurdjevic, principal analyst at Annex Research, contended that HP's move wasn't just aimed at Cisco -- but also at one of the company's most long-standing rivals.

"HP is obviously trying to lower its cost of network solutions and beef up its offerings in a new market, yet one that will also help HP's services business and not just hardware. Also, 3Com's strength in China complements HP's. So that's not only an anti-Cisco move, it's also an anti-IBM strategy," Djurdjevic said.

Some solution providers, commenting on Channelweb.com's community messageboards, guessed that 3Com's VoIP and TippingPoint network security properties were far more important to HP than the smaller company's routers and switches.

Meanwhile, a "rare burst of action" in 3Com securities that reportedly occurred several hours before Wednesday's announcement of the proposed deal had some on Wall Street speculating about a leak to traders. That possibility was particularly troublesome in an industry rocked in recent weeks by the high-profile Galleon insider trading scandal, which revolved around alleged sharing of confidential information about high-tech companies.

Joseph F. Kovar and Steve Burke contributed to this article.

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