Q&A: 3Com's COO On HP, The Channel, And Insider Trading

Hewlett-Packard's proposed $2.7 billion acquisition of 3Com has some longtime channel partners on edge. It also has a number of VARs excited about the possibilities for both HP and 3Com, especially those who'd agree with HP senior vice president Marius Haas' assessment that rival Cisco has a "proprietary stack of hardware" that needs to be challenged.

On a Webinar discussing the pending acquisition Wednesday, 3Com Chief Operating Officer and President Ron Sege said that 3Com would take the necessary steps to integrate 3Com's channels with HP's and that the move would end up "great for partners."

Channelweb.com talked with Sege Friday in hopes of expanding his answers a bit. We also got an earful on what Sege -- who is responsible for all of 3Com's day-to-day operations outside of China -- sees driving networking and data center convergence in 2010.

In talking with a number of 3Com solution providers who are excited about the deal, one thing in particular that stood out was that no one worried about cultural differences slowing up the integration of the two companies. That's pretty rare in tech M&A. If you agree that 3Com and HP are culturally compatible, why do you suppose that is?

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First of all, that's encouraging to hear. I think it's clear we're both driven by customers, partners and market opportunities and we've been good at listening to customers -- all of the things good cultures are built around. We did grow up, 3Com and HP, in the same era, and we tend to focus on open standards, lower cost approaches and pushing the envelope. We have a long heritage of commonality in terms of philosophy and responding to our customer bases.

You mentioned on the Webinar that the acquisition, should it make it through all the necessary hurdles, would end up great for channel partners. Can you comment more on why that's going to be?

Not really, we can't say very much right now, obviously. As we said on the Webinar, though, we are so undercovered in terms of our ability to cover so much market opportunity out there. The resources this combination will bring to bear will great a net positive effect for customers and the channel alike, especially for those with a willingness to invest and grow.

3Com's voice and OfficeConnect portfolios don't get the same attention as H3C, NBX and a lot of the more data center-oriented stuff. These could certainly help HP, however, and many solution providers we've talked to in the past few days went out of their way to point that out. Can you explain how?

SMB in general remains critically important to both companies. I'll speak to the voice side, although OfficeConnect is of course important. Voice is an increasingly important application for our customers. We've been investing in voice since [CEO] Bob [Mao] and I joined the company, and in China, we've invested in software that we're just in the process of coming out with. It's in appliance form, and we're just about to launch that product in China. VoIP is a nascent, potentially exploding market over there.

We're going to continue to invest in our voice business and be sure it's tightly integrated with our switching and routing business. We've historically partnered with some more value-added call center applications, and HP not long ago continued to expand its relationship with Microsoft that includes value-added services in this area. Voice is important to them, and us. I'll leave you to conclude the ways it can work from here.

3Com and HP channel partners obviously want to hear about product roadmaps and also how the channels will be blended. What's your message to them?

First and foremost we can't really talk about it, particularly at these very early stages of the regulatory approval process. But I'll say what we did say publicly, and and that's growing sales coverage, growing demand and investing products that sell 100 percent through partners. You'll see that commitment stay.

Next: Sege's Role, 2010 Predictions, Insider Trading

What does your role become now? Where do you wind up on the new HP-3Com flowchart?

Again, I can't comment on that. I can tell you that both management teams are extremely excited about the potential of the combination. I can tell you I've been waiting 15 years for this -- to have a combination that really can offer a better alternative and a solid number two in the industry, and a chance to gain market share and better serve customers. All of these products are good, and we have a great, young, modern product line coming out of China. We're going to stay focused on running our business until we get these approvals done, and we'll be 1,000 percent committed to that. We'll see what the future brings. I will say that this is the kind of combination we've long envisioned.

Do you expect to see continued M&A in the networking and data segments, even as the economy is expected to pick up?

I'm not a market pundit, but clearly our accommodation was in response to what our respective customers have been asking us for -- fewer, more trusted partners that can stick to the tenets we've talked about before. Other players in the market are hearing the same thing, so yes, expect M&A. In terms of which guys to combine, I can't say. Customers don't want to spend unnecessary money on infrastructure but rather spend it on more strategic areas in IT. We've gone through a permanent transition here. Customers are demanding more for less. The competitive equation has changed forever, and that's certainly to our advantage.

Technologically speaking, what trends do you see shaping 2010 with regard to ongoing data center-networking convergence?

We see a confluence of security and much more heightened awareness of how to secure infrastructure. It's not just cybercrime increasing, it's also PCI, HIPAA a range of other compliance requirements. We integrated into the fabric as opposed to doing something bolted on, and we've been focused on integrating TippingPoint to our product line and to data centers in general. There are tremendous scale opportunities in consolidating data centers.

Then, virtualized desktops are something that is just getting started for capacity and manageability of the LAN. Storage, servers and the LAN will all run over Ethernet, but that's a less interesting story I think than the fact that we need better ways to manage all this. We need one consolidated management scheme. I had dinner with the COO of one of the largest insurance companies on earth the other day, and we spent half the dinner talking about the need for a configuration management database -- some repository of where it all goes. That's going to be a big focus for industry, and something that 3Com and HP have both spent a lot of time talking about.

A few reports have surfaced today looking at a spike in 3Com stock activity Wednesday morning before the HP deal was announced. Given what's happened with Galleon Group, whispers of insider trading are destined to dog any major M&A announcement, I think, especially in tech. Does 3Com have any official response here?

No. That wouldn't be appropriate.

With so many high profile tech executives nabbed as part of the Galleon Group scandal, how is 3Com policing its upper ranks and making sure this type of behavior is avoided?

I won't really comment, except to say we've always been hyper-vigilant. It's something we take incredibly seriously as you might imagine. We're a complex, global organization with lots of people all over the world, and we take our obligations incredibly seriously. We do lots of work with our legal team and specific training and communication. We're leading edge in that area.