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HP-3Com merger heats up Cisco competition

update Hewlett-Packard's 3Com acquisition will give serious boost to its datacenter credentials and challenge networking rival Cisco Systems, notes analyst.
Written by Liau Yun Qing, Contributor on

update The competition between Hewlett-Packard and Cisco Systems has further intensified following HP's 3Com purchase, which will boost the company's datacenter credentials and market presence in China, says an industry analyst.

Adam Jura, senior analyst at Ovum, said in a statement Thursday that although HP's US$2.7 billion purchase of 3Com is not as confrontational as SAP and Oracle's battle over Retek, the influence can be potentially far-reaching.

"Ovum expects competition between HP and the network-dominant Cisco to continue to intensify, particularly as network-centric technology solutions such as cloud computing continue to emerge," Jura noted.

He added that HP, with its Procurve enterprise networking product line, had already invaded Cisco's networking market stronghold.

The HP-3Com deal also benefits both parties as 3Com will be able to leverage HP's strong presence in the North American market, while HP can leverage 3Com's footprint in China, the analyst said.

"3Com's strong position within the Chinese market will be a critical element of HP's acquisition decision," said Jura." HP will hope to leverage 3Com's market presence to align its own technology offerings, in particular, datacenter technology."

A separate note released by Technology Business Researcj (TBR) further noted that the acquisition will significantly enhance HP's ProCurve offerings by plugging portfolio gaps on high-end configurations. However, the analyst firm said the acquisition will create integration challenges including redundancies in networking R&D work, and the need to combine product platforms between the two companies.

According to TBR, 3Com's significant economies of scale and lower cost structure provided by its Chinese operations can set the stage for a global price war, especially when the reliability and scalability of networking supplier are more difficult to demonstrate.

"3Com's H3C brand is widely deployed in China, and has built a reputation for reliability and scalability to match that of Cisco's," the report noted. "In addition, 3Com enjoys lower costs since the majority of its development resources are concentrated in China."

TBR said the acquisition accelerates the trend of major vendors offering a one-stop shop for telecommunications equipment, leading to the likelihood of vendor lock-ins for customers.

"Should Cisco or IBM respond to the HP-3Com acquisition with a similar acquisition of their own, the market is more likely to witness large suppliers offering end-to-end solutions," the research firm said. "As a result, enterprise customers may find themselves facing fewer choices for enterprise networking equipment."

When contacted, a spokesperson from Cisco's Singapore office told ZDNet Asia in an e-mail: "While Cisco has a healthy respect for all of our competitors, acquisitions in our industry only validate the fact that networking is becoming the platform for all forms of communications and IT.

"As the leader in the networking market, Cisco is very confident in our business strategy, commitment to product innovation and ability to provide strategic business value to our customers in a highly competitive marketplace," he added.

The company last week announced a collaboration with EMC and VMware to sell a new integrated datacenter product.

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