HP Buys 3Com

HP is acquiring 3Com for $2.7 billion and there are a number of reasons for this move. First of all, it is obvious the tech market is hot and Cisco and other companies are optimistic about the future as evidenced by the pace of tech acquisitions which is reaching the pace of the glory dotcom days. Moreover, large companies with strong balance sheets are able to access capital if they need it, allowing them to more easily acquire.

3Com for its part is a company with a broad range of networking gear which HP needs to go head-to-head with Cisco. Specifically, 3Com focuses on the SMB space while the TippingPoint division focuses on Security and H3C focuses on large enterprise and is very strong in Asia. I was at 3Com’s headquarters about five weeks ago and spoke with Anna Dorcey and John Vincenzo who were very high on the company’s future.

You may not know this but 3Com has about 35% marketshare in China and a strong manufacturing base there, meaning their costs are low. Their go to market strategy is customer focus and value. 3Com has been a networking and communications value player for years but at the beginning of the decade, the company left enterprises hanging with a shifting strategy which enraged many resellers and customers.

Over the last few years, the company has improved its management and it seems unclear as why now was the time to sell. Perhaps HP gave an offer which was too good to refuse? Or perhaps company execs realize with the HP brand behind them, the company can raise prices and compete with Cisco and have fatter margins.

The worst part of this deal for Cisco is that we can expect the EDS division of HP to really push 3Com products at the expense of Cisco.

Also, if you are playing chess, you would imagine Dell and IBM are picking up the phone and having conference calls about purchasing Adtran and or Brocade as they are similar in product-line to Cisco and 3Com. Remember Dell just picked up a systems integration firm Perot Systems and the next step for them would be to add more products to their mix.

Other targets with substantial integration value worth watching are Plantronics, Polycom and Avaya.

While I am in the predicting mood, expect Cisco to pick up wireless backhaul vendor DragonWave or Ceragon in the near future as they build out their wireless networking strategy focused on wireless carriers.

But in the end, there are only a handful of tech companies who have shown they can acquire well. Oracle is best, Cisco is second best and IBM is good. HP is also doing pretty well in their area. It is early to predict how Dell will fare.

I am frankly surprised at the absolute pace of M&A activity but I should point out that this is great news for tech and telecom as it is a signal that companies feel confident about the future of the market and the growth in spending they anticipate in the future.

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