HP announced Nov 11, 2009 that 3Com and HP had signed a definitive agreement for HP to acquire 3Com for $2.7 billion in cash. The deal is expected to close in first half of 2010.
Ever since Cisco's foray into the heart of HP's server computing business - the data center computer - HP and its alliance (with Cisco)'s days have been numbered. You might recall that HP already has a networking business with stackable and simple modular switching products and includes the Colubris WiFi unit acquired in August 2008, the ProCurve unit which has been successful in garnering market share and innovating with low power, high performance and channel-friendly products suited to the non-Cisco, small business customer segments. In its direct, professional services (remember HP bought EDS in May 2008) and limited channel sales channels which were pushing servers and data center-class storage and the like, the product set of Cisco was better suited, and more frequently required by customers. That game of co-opetition is now reaching a new level.
3Com's checkered history in enterprise networking confirms that you can't ignore major perceptions of the brand. Throughout the 1990s, 3Com stood for the finest purveyor of tiny little boxes - Palm, modems, NICs - and with its disastrous elimination of the Corebuilder line of modular switching products in circa 2001 (sadly the project was called internally 'Catapult') the company retreated from the enterprise sales business focusing instead on the reseller-centric access switching business and its IP PBX offering.
A joint venture with Chinese telecom manufacturer Huawei called H3C which 3Com now owns completely has made remarkable progress in beefing up the 3Com product line for switches and routers and storage devices and IP PBXes and lots of other enterprise gear. H3C is the #1 market position in China, challenged only by Cisco. Of course, the reverse is the case in the rest of the world.
Tippingpoint, the Intrusion Prevention System market leader, is a unit of 3Com too.
Strategic Fit [5/5] - Complementary Channels.
HP's ProCurve product line just got a little more complicated. In the access and stackable switching line, which is intensely distributed through a two-tier structure around the world and which competes with HP ProCurve, there is the 3Com brand, the Baseline brand and the OfficeConnect brand. Some units are managed, some are not. Some units are stackable, others are not. As I recall, this is like Buick and Pontiac and Oldsmobile. Which one is more feature rich? Hopefully, the brand managers at HP can rationalize the brands giving each a market or focus area that their product managers can develop for growth and to signal to the channel and customers what each brand is about - or shut them down. Otherwise, it'll be another layer of internal competition and industry confusion about when to choose one and when to choose the other similarly featured product.
More significantly, HP and by association, the EDS unit, gain access to the H3C modular switching and router line which are quite powerful and feature rich. These direct or project sales channels will greatly enhance HP's capabilities in gaining share without feeding their nemesis (Cisco).
Timing [5/5] - Recessions are The Best Time to Buy.
Of course the stock price of 3Com hasn't deviated much in the past 5 years, but the recessionary time and this moment of being in recovery gives cover to Mark Hurd and company as they prepare for severe competitive strain, similar to HP's competition for servers with IBM.
Customer Demand [4/5].
Enterprise customers have long memories and have never forgiven 3Com for abandoning the core switching market. Although many business plans (I know of 3) have invested millions to build direct sales to major enterprise customers, the service, process and brand experience has consistently fallen short of customer expectations making excellent references difficult to earn and keep. The repeated, failed attempts to bring the 3Com brand to enterprise buyers only makes it harder the next time.
HP however, has a much different business dynamic in enterprise sales and service, and have earned the right to bring ProCurve-branded product to enterprise customers. Hopefully, HP will relegate the 3Com name to the small box business and focus HP on the high end product and service values.
Potential [4/5].
With the success in China which has been the largest and fastest growing IT market over the past five years or more, a rebranding of the 3Com business is in order to really drive the potential of the product line and the service line (EDS) as a stake into the heart of Cisco. Cisco customers will be best served to consider the new offer to come from HP and no doubt will be rewarded handsomely for dividing up their networking decisions with Cisco and HP, and not letting the behemoth of Tasman Drive take their business for granted. No doubt all the growth Cisco is looking for is not coming from the IT budgets of the customers who got them there. Will Cisco arrogance be their downfall? Is this the beginning of the end for Cisco?
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