HPs Networking Gamble

HPs acquisition of 3Com comes barely a few months after 3Com celebrated its
thirty years of founding by Bob Metcalfe, who incidentally was also the inventor
of Ethernet. The deal which is worth $2.7 bn will make HP a strong player in the
enterprise networking space, and allow it to offer a wide range of IT and
networking products and solutions. More directly, it will provide a solidity to
HPs data center strategy, which can now boast of integrated offerings on the
lines of what Cisco has on offer.

3Coms reputation has been that of a price warrior since the time of its
inception, with the company taking on traditionally strong players like Cisco
and Juniper in the switching and routing space. Although HPs networking
divisionProCurvesomewhat was complementing the companys networking needs, but
there was not much synergy, and it appeared to be positioned as a separate
entity.

It appears that pure play players, and the distinction of vendors into IT
hardware and services and networking is clearly getting blurred, with both
former and latter getting into each others domains. In a direct reference to
Cisco, this sentiment was echoed by Dave Donatelli, vice president, HPs
enterprise server and networking division, in a statement which says that
companies are looking for ways to break free from the business limitations
imposed by a networking paradigm, that has been imposed by a single vendor.

After this acquisition, Juniper remains one of the few, remaining only pure
play networking vendor with a global presence after Cisco got into the server
and storage market through its unified computing system, launched in March 2009.
Cisco called this new data center architecture, innovative services and an open
ecosystem of best in class partners to help customers develop the next
generation data centers, that can unleash the full power of virtualization. But
this was a clear cut target at some of its partners like HP and IBM. Technically
speaking, this was Ciscos attempt at integrating computing, networking, storage
access, and virtualization.

The deal also appears to be HPs strategy of focusing on emerging markets
like China. The deal also strengthens HPs Ethernet switching offerings, thanks
to H3Cs portfolio, which has a significant presence in the Chinese market
through its sales and R&D presence. However, as far as India is concerned,
3Coms insignificant presence and ProCurves increasing mindshare in the region
will be a perfect combination for HP, which will seek to increase its networking
solution market share in India.

One challenge HP will have to overcome is the overlap between the product
portfolio of ProCurve and 3Com. ProCurves offerings include switches, WLAN and
WAN, data center management, network security products; while 3Com also offers
switching, routing, WLAN, security, network management. One segment not
addressed by ProCuve and which 3Com offers include IP telephony products, which
can be beneficial for HP considering that the market is growing. Other clear cut
value propositions that 3Com brings to the table include H3C (a Huawei and 3Com
JV) and Tipping Point  (3Coms security acquisition); in which  the dealthat
was announced after the market closedis a clear indication of HPs desire to
tackle its long time partner Cisco (CSCO Quote) in its own backyard. Cisco
stepped on HPs toes earlier this year when it entered the server market,
signaling an all-out war between the two companies. As a part of the merger
agreement, the transaction is expected to close in the first half of 2010.

Sudesh Prasad

sudeshp@cybermedia.co.in