
3Com: H-P to Build Tech 'One-Stop Shop'
NEW YORK (
--
3Com's
(COMS)
shock
acquisition
by
Hewlett-Packard
(HPQ) - Get Report
will create a one-stop shop for companies searching for a slew of different data center gear, according to Ron Sege, president and chief operating officer of 3Com.
"That's certainly the objective," he told
TheStreet
. "It really is bringing the servers, the storage, the networking
and the software layer that ties all these things together."
There had been
that H-P was
eyeing
Brocade
(BRCD)
as a possible acquisition target, so the $2.7 billion 3Com deal
some tech industry observers.
"It's a bold move," said Sege. "I think everybody was speculating maybe something a little more linear. This was definitely a transformational decision."
Despite an extensive portfolio of networking products, 3Com had struggled to establish itself in a market
with the likes of
Cisco
(CSCO) - Get Report
and
Juniper
(JNPR) - Get Report
, although the Marlborough, Mass.-based firm offers H-P a lucrative gateway to China.
During 2009, more than half of 3Com's sales, just over $700 million, were generated in China, up from around $600 million in the prior year. H-P, for its part, is frantically expanding its Chinese presence, forging deals with the likes of
China Mobile
and basing its printer business in China.
"Just like politics, all business is local. Customer intimacy is more important
in China. It's a lot more of a person-to-person approach to commerce," explained Sege. "Having that formula down, competing like a local company, is definitely important, and that has been an important part of our success."
3Com's
has more than 30% of the Chinese networking market, and 3Com is playing a major role in the country's technology overhaul.
Sege explained that 3Com and H3C are involved in eight of China's 12 "golden projects," referring to the country's attempts to build a massive Internet backbone for education, energy and transport. 3Com is also working with Internet companies such as
Tao Bao
, which has been described as China's equivalent of
eBay
(EBAY) - Get Report
, major banks and the Beijing Capital International Airport.
"It gives
H-P a much stronger sales presence
in China. We have 1,500-plus sales people, thousands of customers," said the COO. "The H3C brand is the leading brand in China for networking."
3Com, which has earned a reputation for aggressive pricing, recently announced plans to expand H3C into the rest of the world, and is hoping to use H-P's vast distribution channel as a springboard.
"Our biggest challenge is ramping distribution fast enough, having enough sales people, and this deal certainly gives us that," said Sege, adding that 3Com will help H-P's large enterprise push. "They have made no secret of the fact that they need more products and capabilities for large enterprise networking, and that certainly addresses that issue."
Despite the obvious
synergies
between H-P and 3Com, at least one analyst
that it could be some time before the two companies see the fruits of their labors. H-P and 3Com combined will initially have less than 10% of the enterprise switching market, according to Jayson Noland, an analyst at R.W. Baird, compared with Cisco's 66%.
H-P, of course, is hell-bent on stealing share from its one-time partner Cisco after the networking giant
the
earlier this year.
"That's obviously a fundamental element of the deal," said Sege. "There haven't been a lot of better alternatives on the market that can have the scale that we can once this deal closes."
Another aspect of the deal, somewhat overlooked in all the brouhaha surrounding China and Cisco, is 3Com's security technology. The networking specialist bought
TippingPoint
for around $430 million in 2005, which could now boost H-P's own security story.
"I think it's going to feature prominently -- it certainly features prominently in our portfolio," Sege told
TheStreet
. "In September we announced that the Tipping Point technology was going on the H3C switching and routing products."
3Com's stock has reaped the benefits of the H-P deal. After closing at $5.69 when H-P announced the acquisition on Sep. 11, 3Com's shares are currently trading around $7.43.
The deal is expected to close in the first half of 2010, at which point 3Com will add its products to H-P's existing ProCurve networking portfolio.
-- Reported by James Rogers in New York









