HP's 3Com Acquisition will Increase Cisco Rivalry

by CXOtoday Staff    Nov 12, 2009

With its $2.7 billion buy-out of networking solutions provider 3com, HP has made its intentions clear. But a network-centric strategy is surely set to raise eyebrows at Cisco, say analysts at advisory and consulting firm Ovum

Though HP had already started to encroach upon Cisco’s market with its procurve product line, the acquisition of 3Com provides a serious boost to its data center credentials, says Ovum.

Says Adam Jura, senior analyst at Ovum, "While there has been speculation in the last few months about the intentions of Cisco with respect to EMC and VMware, the interesting news overnight has come from HP with its acquisition of 3Com. Unsurprisingly, this steps up the level of competition between HP and Cisco. While it may not be as confrontational as, say, SAP v Oracle (Retek in particular), the implications could potentially be far reaching."

The acquisition of 3Com opens up a cross-pollination opportunity for the two companies as well. While 3Com has had difficulty entering, and staying within the North American market, it will likely be able to leverage HP’s strong presence as a more direct way into accounts. HP will be keen to offer the extended network capabilities and products of 3Com amongst its existing customer base in an effort to increase its share of wallet.

Conversely, 3Com’s strong position within the Chinese market will be a critical element of HP’s acquisition decision. HP will hope to leverage 3Com’s market presence to align its own technology offerings - in particular, datacenter technology. 3Com also has good engagements with key industries, including energy, transportation, and education at an enterprise level. These will be attractive industries for HP in China given their increasing level of government funding.

So what will Cisco’s response be? "Cisco is currently holding around $4.7billion in cash and equivalents on its balance sheet although this figure has dropped in recent quarters. It does afford the company the opportunity to make an acquisition however Ovum does not expect anything immediately. The logical choice would be EMC and as such market rumors continue to abound," said Jura

Regardless, competition between HP and the network-dominant Cisco could continue to intensify particularly as network-centric technology solutions such as cloud computing emerge.

Related Link

HP, 3Com Sign Acquisition Pact