Summary
Hewlett Packard has finally made its next move after making significant buys in software and services. After the failure to get approval to put 3Com under Chinese partner Huawei, the company needed to find a way beyond H3C, the combined enterprise business, to compete against Cisco, especially in the Americas and EMEA. With this deal, Hewlett-Packard will have placed its excellent ProCurve line, a favorite of resellers, alongside 3Com in more integration deals, which will move more revenue into the HP top from Cisco, and place HP in a good position to take advantage in the Enterprise and SOHO Voice over IP segments.
Once settled, Juniper may need to look hard at partnering more deeply in order to align itself with a much stronger competitor against Cisco.
Analysis
Acquiring 3Com makes sense for HP and could have happened sooner, but HP CEO Mark Hurd clearly decided to ensure recent changes in enterprise technology investment levels and government business would remain positive for Hewlett-Packard and its Services business.
The entry-level and small business focus of the 3Com indirect channel fits well with parts of the HP ProCurve line, which will allow HP to keep the best of both with a net gain for revenues.
Enterprise, which 3Com strived to re-establish with its Chinese partner Huawei after being bested years ago by Cisco, will deliver to HP Services the ability to displace Cisco gear and permit the combined sales forces to put heft behind solid 3Com gear that has at times fallen short of Cisco due to the relative small size of 3Com as supplier.
While the position of 3Com and H3C in China will be a focal point for investors, HP will need to work out its relationship with Huawei, given its real or perceived close ties to the Chinese military, and more importantly, as HP is now the senior partner in the relationship.
Support for VoIP, based in the long experience 3Com has in telephony, will be a sizeable opportunity for HP, and may trickle down into consumer-focused and SOHO VoIP products in 2010, making this yet another competitive pressure point on Cisco.
It remains to be seen if HP will also use 3Com as a retail brand, as it was in the past, to establish a shelf presence in retailers to compete against the Linksys unit of Cisco, but again, this would bode for credible pressure on Cisco, although minor second-tier networking vendors selling into office supply, consumer electronics and other retailer channels, such as Belkin, are more likely to feel the pain should HP decide to assert itself in this space.
Last but not least, the addition of Tipping Point and the related secure operations business that is linked to the U.S. federal government and agencies gives HP an excellent position in the growing and meaningful security sector, again to the benefit of its Services unit. The growing demand for secured network access in Enterprises will allow HP to leverage Tipping Point to a greater extent than through a stand-alone 3Com.
If HP decides to make another move quickly, troubled Unisys could be the target.
