Hewlett-Packard Co (HP) is making a move into the network equipment market by striking a US$3.1 billion deal for 3Com Corp, in a major challenge to Cisco Systems Inc.
The deal is the latest sign that technology giants from IBM Corp to Oracle Corp are increasingly encroaching in each other’s markets as they seek to become one-stop shops for computing, networking and data storage. Cisco itself this year pushed into the server market, of which HP is a major player.
HP, which also reported higher-than-expected preliminary earnings on Wednesday, said it would pay US$7.90 per share for 3Com, a 39 percent premium over its closing price.
The deal values 3Com at US$2.7 billion excluding its net cash.
“Cisco and HP are going to compete more and more,” said Jayson Noland, analyst at Robert W. Baird & Co. “We’re headed to a world where each of these large companies can give you everything you want.”
By buying 3Com, HP will be competing with Cisco on a wider range of network equipment, including routers and switches. 3Com also has a large presence in China and can help HP expand sales into one of the world’s fastest-growing markets.
HP is already a dominant force in personal computers, IT services, servers and printers, with recurring revenue streams that have helped it during the economic downturn.
3Com, for its part, has been pushing into the large enterprise market outside China with its H3C brand, trying to take on giants like Cisco.
3Com would be HP’s fourth-biggest acquisition ever. The Marlborough, Massachusetts-based 3Com has 5,800 employees and posted fiscal 2009 revenue of US$1.3 billion, more than half of which came from China.
“We wanted to create a powerhouse in the networking industry,” said Marius Haas, senior vice president of HP’s ProCurve networking division, adding that the 3Com deal puts HP in a good position to compete against Cisco.
When asked for comment, Cisco said: “While Cisco has a healthy respect for all of our competitors, acquisitions in our industry only validate the fact that networking is becoming the platform for all forms of communications and IT.”
Cisco has been one of the biggest shoppers in tech over the past month, announcing plans to buy videoconferencing company Tandberg, as well as wireless equipment maker Starent Networks Corp — both deals worth around US$3 billion.
HP, which has bought 30 companies since chief executive Mark Hurd arrived in 2005, had US$13.6 billion in cash, equivalents and short-term investments as of July 31.
The terms of the 3Com deal were approved by the boards of both companies, but needs shareholder approval. The deal is expected to close in the first half of next year.
HP also reported preliminary fiscal fourth quarter profit per share of US$0.99, up from US$0.84 a year ago, and raised its outlook for the next fiscal year.
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