HP's R21,1-billion acquisition of 3Com will create a serious contender to Cisco in the networking environment, neatly responding to Cisco's move earlier this year into the server market.
Between them, the two networking vendors have steadily reduced Cisco's previously-overwhelming dominance in the enterprise networking space, and analysts expect a combined entity to pose a more direct threat.
HP yesterday announced that it has entered into a definitive agreement under which HP will purchase 3Com, a leading provider of networking switching, routing and security solutions, at a price of $7,90 per share in cash or an enterprise value of approximately $2,7-billion (about R21,1-billion).
The terms of the transaction have been approved by the HP and 3Com boards of directors.
According to a statement from HP, the combination will transform the networking industry and underscore HP’s next-generation data centre strategy built on the convergence of servers, storage, networking, management, facilities and services.
“Companies are looking for ways to break free from the business limitations imposed by a networking paradigm that has been dominated by a single vendor,” says Dave Donatelli, executive vice-president and GM: Enterprise Servers and Networking at HP. “By acquiring 3Com, we are accelerating the execution of our converged infrastructure strategy and bringing disruptive change to the networking industry.
"By combining HP ProCurve offerings with 3Com’s extensive set of solutions, we will enable customers to build a next-generation network infrastructure that supports customer needs from the edge of the network to the heart of the data centre.”
Bob Mao, CEo of 3Com, adds: “Our extensive product line and innovative technology together with HP’s breadth and scale will expand our global opportunity,” said . “3Com’s networking products are based on a modern architecture which has been designed to offer better performance, require less power and eliminate administrative complexity when compared against current network offerings. Our products are enterprise proven and widely deployed in the world’s largest banks, manufacturers, Internet service providers, public utilities and retailers.”
The acquisition of 3Com will dramatically expand HP’s Ethernet switching offerings, add routing solutions and significantly strengthen the company’s position in China – one of the world’s fastest-growing markets – via the H3C offerings. In addition, the combination will add a large and talented research and development team in China that will drive the acceleration of innovations to HP’s networking solutions.
3Com also brings to HP best-of-breed network security capabilities through its TippingPoint portfolio. For the past four years, TippingPoint has been the leader in Gartner’s “Magic Quadrant” in its evaluation of leading network security products. Approximately 30 percent of the Fortune 1000 companies have already deployed TippingPoint intrusion prevention systems.
“We are confident that we can run our entire global business of 300,000-plus employees, including our next-generation data centers, entirely on the new HP networking solutions,” says Randy Mott, executive vice-president and CIO of HP. “Based on our experience and extensive testing of 3Com’s products, we are planning to undertake a global rollout within HP as soon as possible after the completion of the acquisition.”
In an interview with the New York Times, Ann Livermore, sais the networking market is worth $40-billion a year, with high profit markgins.
Traditionally, it has been dominated by Cisco, she says, with little direct competition – which HP is hoping to change with the 3Com acquisition.
“What we’ve been missing is networking for the core of the data center,” she is quoted as saying. “That’s where Cisco is strong and, before, HP couldn’t attack that.”
The transaction is expected to close in the first half of calendar 2010.
Meanwhile, HP has announced preliminary results for the fourth fiscal quarter 2009, with revenue of $30,8-billion, down 8% from a year earlier; down 5% when adjusted for the effects of currency and up 12% sequentially.
In the fourth quarter, preliminary GAAP diluted earnings per share (EPS) were $0,99, compared with $0,84 in the prior-year period. Preliminary non-GAAP EPS were $1,14, compared with fourth fiscal quarter 2008 non-GAAP EPS of $1,03. Non-GAAP diluted EPS estimates exclude after-tax costs related primarily to the amortization of purchased intangibles, restructuring charges and acquisition-related charges of approximately $0,15 per share and $0,19 per share in the fourth fiscal quarter of 2009 and 2008, respectively.
“Solid execution drove exceptional performance for HP this quarter, fueled by significant growth in China,” says Mark Hurd, chairman and CEO of HP. “We are delivering on our strategy and are well positioned going into 2010.”