PALO ALTO, Calif. ( TheStreet) -- Hewlett-Packard's ( HPQ) acquisition of PALM ( PALM) may be more exciting to talk about, but it is the computer maker's purchase of 3Com that could spell the biggest upside for investors.

H-P blew past Wall Street's estimates in its second-quarter results last night; the company was boosted by a rapidly-improving economy. H-P also raised its guidance, citing strong PC sales, a rebound in enterprise spending, and -- crucially -- the impact of adding 3Com to its lineup.

HP

H-P's smartphone and tablet plans have come under the microscope following the $1.2 billion Palm deal, overshadowing last year's $2.7 billion 3Com acquisition. The 3Com deal, however, will help H-P challenge networking giant Cicso ( CSCO) and widen a major revenue stream.

During a conference call last night, H-P CEO Mark Hurd explained that 3Com helped the company close deals with two Fortune 500 firms during the second quarter. "We've had a very good start with 3Com -- we have been aggressive in hiring," he said, adding that H-P's ProCurve products also enjoyed a "very significant" number of wins during the quarter.

The tech bellwether's results have prompted Goldman Sachs to raise its 2010 H-P earnings estimate from $4.48 to $4.65. For 2011, the analyst firm also raised its forecast from $4.96 to $5.20, thanks largely to 3Com.

"Higher revenue (despite a bigger FX drag) and the inclusion of 3Com are the main drivers to our increased EPS forecast," wrote Goldman David Bailey in a note released on Wednesday.

H-P only closed its 3Com acquisition on April 12, so the networking firm contributed just $50 million to its second-quarter revenue. The company's overall networking business is nonetheless enjoying rapid growth, with sales up 58% year-over-year.

Cisco, however, still holds about 70% of the networking market, according to Goldman Sachs, but H-P's 3Com deal is pushing in the right direction.

"We think H-P, now with a broader portfolio of networking equipment, is well-poised to mount a more serious challenge to Cisco in networking," wrote Goldman analyst Simona Jankowski. " This may make it more challenging for some of the smaller vendors, including Brocade ( BRCD) and Juniper ( JNPR), to gain significant share."

At least one expert, however, explained that H-P is still in its early days of being a major networking player. Jayson Noland, an analyst at R.W. Baird, said that the company's total networking revenue was $292 million during the second-quarter, a tiny fraction of the firm's total sales of almost $31 billion.

Without the 3Com contribution, H-P's networking business grew 31% compared to the same period last year. While this is a healthy figure, Noland noted that Cisco's switching business grew 41% in its recent third quarter, and the San Jose, Calif.-based networking giant has said that it is gaining share.

3Com's importance, however, cannot be underestimated. The gearmaker, which brought in $1.3 billion of revenue in fiscal 2009, could take H-P's networking sales to new levels and is also expected to boost its presence in China.

During the second quarter, revenue from outside the U.S. accounted for about 66% of H-P's total revenue, with revenue from Brazil, Russia, India and China increasing 25%. The BRIC countries now account for 10% of H-P's total revenue.

Last year Cisco riled its long-time partner H-P by entering the server market, and the two former buddies are now daggers drawn. Cisco may have the upper hand in the networking market, but the techsphere expects H-P to wield 3Com like a cudgel during the coming months.

Prior to its acquisition by H-P, 3Com had earned a reputation for aggressive pricing. Last year the Marlborough, Mass.-based firm also announced plans to expand its Chinese H3C subsidiary into the rest of the world.

-- Reported by James Rogers in New York

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