Home Hewlett-Packard to Buy 3Com in Quest for China Market

Hewlett-Packard to Buy 3Com in Quest for China Market

Hewlett-Packard will acquire 3Com for $2.7 billion to compete more effectively against Cisco Systems in the competitive computer networking market.

The deal, announced this afternoon, appears on the surface to help HP gain a position in China. This is where the action is in the computer networking market and a main reason for the acquisition. But below the surface is a story about 3Com’s falling position in the Chinese market and the rise of Huawei Technologies, a player that everyone is watching, including Cisco, which considers the Chinese company its biggest rival.

At stake is nothing less than billions of dollars in computer networking gear and the bounty that comes with data-center consolidation and the convergence of servers, storage, networking, management, facilities and services.

TippingPoint is one of the jewels that HP receives as part of the 3Com acquisition. According to HP, TippingPoint has been the leader in Gartner’s “Magic Quadrant” in its evaluation of leading network security products. HP says that about 30% of the Fortune 1000 companies have already deployed TippingPoint “intrusion prevention systems.”

Once one of the world’s leading networking hardware firms, 3Com fell behind in the market before finding salvation in China’s booming market for telecommunications gear. The company went into a partnership with Huawei Technologies until 3Com bought the entire joint venture operation in 2006.

That buyout came after Huawei and Bain Ventures unsuccessfully tried to acquire 3Com. The deal died after the US Congress raised concerns about the acquisition. Huawei is funded in part by the Chinese government. Its technology is used by the Chinese military.

After the buyout, Huawei agreed not to compete with 3Com until 2008. Since then, Huawei has been a strong competitor, taking market share from 3Com.

Huawei is the one to watch as this merger unfolds. Cisco calls Huawei its biggest competitor. In a press conference Monday, Chambers said that in the big picture, “It’s Huawei, Huawei and Huawei.”

How much will HP really benefit from 3Com? Nerd Twilight had this take in July when it looked like 3Com was not faring so well in its competition with Huawei:

“…What makes it worse is that 3Com will not be able to compensate for the loss of Huawei business in China, where it is attempting to build its own channels and customer base; nor in Europe or North America, especially the latter, where 3Com’s name has been tarnished severely by its historical cut-and-run lack of commitment to enterprise customers and markets.

3Com has done a masterful job with PR earlier this year, driving up its stock with a narrative about its comeback as an end-to-end purveyor of networking gear capable of taking share from an allegedly distracted and vulnerable Cisco Systems, longtime hegemonic power in enterprise networking.

Indeed, Cisco is heading off in many directions, and it might be exposed to other players, but HP, with its ProCurve gear, looks set to pick up whatever marbles slip from Cisco’s grasp. IBM, thanks to OEM deals with Juniper Networks and Brocade Communications, also is well placed to take some business — and don’t be surprised if IBM doesn’t acquire Juniper or Brocade at some point.

Both HP and Cisco see the opportunity of data-center consolidation — servers, storage, networks, the whole shooting match — aided and abetted by virtualization. IBM sees it, too, but it hasn’t yet committed to direct ownership of a networking business unit, perhaps still reeling from the field-sales hangover that resulted from its former addiction to Cisco as a networking partner.”

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