HP augments networking capability with 3Com

(By Philip Carnelley, 11 Nov 09, 22:00) HP has announced that it is to boost its networking capability by buying venerable network products provider 3Com, for $2.7b in cash – around 2x revenues and a 53% premium on its closing price yesterday. 3Com’s board has approved the deal.

Founded in 1979, 3Com has been almost synonymous with Ethernet products. Ethernet is the basis for most local/wide area networking today and was invented at Xerox Parc by a team including 3Com’s co-founder, Bob Metcalfe.

This is a direct response to Cisco. Cisco has been increasingly looking to move up the IT food chain, taking on increasing numbers of software applications, and setting up with EMC to sell data centre solutions (Cisco and EMC combine to form Acadia, take on HP and IBM). HP is now expanding in the other direction. This move also helps HP match IBM in yet another arena. As networking is – unlike other areas of IT – largely standards-compliant, then increased competition is likely to drive down margins through extended user choice.

In a linked move – to "facilitate communications with investors regarding today's announcement" – HP issued a trading update for its FY09. Q4 revenues were down 8% (5% at constant currency) to $30.8bn. Eps was however up 18% on the prior year. The one snippet of information in the release was that sales were boosted by significant growth in China. A full earnings release is scheduled for 23rd November.