OT: 3Com to be sold to HP for $2.7b

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3Com to be sold to HP for $2.7b

Computer giant takes aim at Cisco's network business

Computer giant Hewlett-Packard Co.
<http://finance.boston.com/boston?Page=QUOTE&Ticker=HPQ> will buy
network equipment maker 3Com Corp. of Marlborough for $2.7 billion in a
head-on challenge to Cisco Systems Inc.
<http://finance.boston.com/boston?Page=QUOTE&Ticker=CSCO> , which
dominates the network business. The deal will position HP to attack the
heart of Cisco's market, and it comes only a week after Cisco teamed up
with data storage titan EMC Corp.
<http://finance.boston.com/boston?Page=QUOTE&Ticker=EMC> of Hopkinton
to invade HP's stronghold in server computers and storage.

"This is going to rock the networking world,'' said 3Com's president,
Ronald Sege, adding that HP's global sales force could quickly expand
3Com's market share.

3Com is the second major Massachusetts tech company in the past month to
be acquired by a Silicon Valley firm, as the tech sector reacts to
decreased business spending with a wave of consolidation deals. In
October, Cisco said it will pay $2.9 billion to acquire Tewksbury-based
Starent Networks, a maker of network gear for cellular telephone
systems.

Just last week, Cisco teamed up with EMC in a joint venture to combine
their computing, storage, and networking products in a play for HP's
core business, enterprise computing equipment. Cisco just started making
server computers this year.

Tech giants are using mergers and alliances to quickly offer one-stop
shopping to companies looking to save money by buying all their network
products from a single vendor, instead of assembling corporate data
centers one piece at a time. "It improves the efficiency, it improves
the speed of deployment, and it drives costs down,'' said Abner
Germanow, a networking analyst at IDC Corp. in Framingham.

The 3Com purchase lets HP fill holes in its product mix far quicker than
it could by developing its own product line from scratch. Although it is
one of the world's leading makers of computer servers for big business,
HP has offered only a limited range of networking hardware. Most of that
has been at the "edge'' of the network, like the switches that connect a
roomful of PCs and printers to a corporate system. Cisco dominates the
"core'' market - switches and routers that distribute the massive
amounts of data streaming into the network. With 3Com, HP gets a
ready-made line of core network products to sell.

Buying 3Com "gives us critical mass in a very important market,'' said
David Donatelli, a former top EMC executive who made a surprise move to
HP in April. Donatelli will oversee 3Com in his new role as HP's
executive vice president of enterprise servers and networking, and is
slated to take over HP's storage operations in April, when his
noncompete agreement with EMC expires. That will put him on the
frontline of HP's rivalry with the Cisco-EMC joint venture.

The deal illustrates 3Com's return to prominence after a dramatic
decline earlier in the decade. 3Com was cofounded in 1979 by Bob
Metcalfe, one of the inventors of Ethernet, a networking technology that
has since become a global standard. 3Com was originally based in Santa
Clara, Calif., and its line of Ethernet products made it one of the most
successful technology firms of the 1990s, employing as many as 12,000
workers at its peak.

Tough competition from Cisco and the 2001 collapse of the first Internet
boom devastated 3Com. The company ceded the enterprise networking market
to Cisco and slashed thousands of jobs.

3Com now employs about 5,300 workers worldwide, including about 300 in
Massachusetts. Sege said he did not know how the HP acquisition would
affect local 3Com workers.

In 2003, a much diminished 3Com relocated to Marlborough. At about the
same time, the company launched H3C, a joint venture with Chinese
networking company Huawei Technologies.

H3C's stable of Chinese engineers developed new high-end networking gear
that was embraced by fast-growing Chinese companies, and has since
attracted customers in Europe and Latin America. 3Com claims that 300 of
China's 500 largest businesses use its products, along with US
institutions like the National Aeronautics and Space Administration and
the Massachusetts Institute of Technology.

In 2006, 3Com bought out Huawei's stake in H3C. The following year,
investment firm Bain Capital teamed up with Huawei on a $2.2 billion bid
to acquire 3Com.

But federal regulators blocked the bid because 3Com owns TippingPoint, a
maker of network security gear used by the US Department of Defense.

The regulators noted Huawei's close ties to the Chinese government and
worried that Huawei might help Chinese intelligence officials circumvent
TippingPoint technology.

After the Bain-Huawei deal fell apart early last year, 3Com focused on
developing a new line of core switches and routers that it claims will
outperform Cisco gear while using much less electricity.

HP's Donatelli said that once the deal is completed, his company's
300,000 workers will exclusively use 3Com gear for networking needs.

       CCIE # 23962

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Received on Thu Nov 12 2009 - 08:49:14 ART