HP Takes a Big Swing at Cisco

NEW YORK ( TheStreet) -- Hewlett-Packard ( HPQ) has taken another swipe at Cisco ( CSCO), as the former partners continue to slug it out in the server and networking ring.

Relations between the two companies started to deteriorate when Cisco entered the server market last year, a move that HP says is starting to backfire.

"They picked a battle that they can't win, because running a data center is very different to running a network," David Gee, HP's vice president of worldwide marketing, told TheStreet. HP, he added, offers a "three-legged stool" of technology containing networking, storage and server compute power, whereas Cisco's expertise is mainly in networking.

"It's pretty hard to sit on a one-legged stool," he quipped.

Cisco, which first stepped on HP's toes in 2009 when it launched its UCS server product, didn't have the smoothest summer. The Silicon Valley heavyweight gave tepid second-quarter guidance and CEO John Chambers famously noted that Cisco hit some "air pockets" in IT spending.

HP claims that it is adding to Cisco's problems. "I think that those 'air pockets' are being certainly fueled by the combination of HP's networking business with 3Com," said Gee. "We're giving them a run for their money on performance and the geographic footprint that 3Com can get to."

HP splashed out $2.7 billion on switch maker 3Com last year in a move that was seen as a major challenge to Cisco, particularly in the lucrative Chinese market. 3Com's H3C subsidiary is a major player in China, which is in the midst of an economic and technology explosion.

Following Cisco's server launch, HP also ramped up its ProCurve networking technology, bolstering its network security story by acquiring ArcSight.

During its recent fiscal fourth-quarter, HP's ProCurve business grew 50% compared to the prior year's quarter. Including the 3Com acquisition, the company's networking revenue grew 227% over the same period.

"At this point, it seems that HP is gaining some market share in the networking business," Kaushik Roy, an analyst at Wedbush, wrote in a recent note. He added that the 3Com products are still sold mainly in Asia. "As HP puts more emphasis on selling 3Com in the US, we believe HP will gain more share in networking."

Cisco has not yet responded to TheStreet's request for comment on this story. But in a recent interview, CFO Frank Calderoni said that he felt confident about the company's long-term growth prospects.

The networking giant also struck a bullish UCS tone during its recent first-quarter conference call. According to CEO John Chambers, Cisco's UCS business grew 550% year-over-year at an annualized run rate of almost $500 million. Cisco now has around 2,800 UCS customers, he said, up from 900 three quarters ago.

HP shares dipped 20 cents, or 0.48%, to $41.34 on Wednesday, mirroring the modest retreat in tech stocks that saw the Nasdaq slip 0.31%. Cisco's stock was also down, albeit modestly, falling 8 cents, or 0.36% to $19.47.

--Written by James Rogers in New York.

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