In the past few months we've had Avaya win the bid to buy Nortel and Cisco acquire Tandberg. Now its HP's turn to grab some headlines. Just as the Cisco Collaboration Summit was winding up, HP stole the thunder and announced late Wednesday evening that they intend to buy 3Com. From discussions with people since this announcement went out, it's clear to me that this is a surprise to most individuals that aren't deeply involved in the networking industry. While it's fairly well known that HP has many holes in its product line, most people suspected that HP would acquire Brocade, Force10 or maybe even Arista and then boom, the 3Com news comes out. If HP's focus had been solely on the data center then one of the other companies might have made sense but HP's out to take as much business from Cisco as it can and that means more than just switching. The on going feud between Cisco and HP has continued to heat up and is now as intense as Kristin Cavallari and Lauren Conrad on "The Hills" (for the record, I like Kristin better) so we should expect the punches and counter punches to continue.
Most people that watch the networking industry peripherally really don't know the breadth of the 3Com portfolio. The JV with Huawei didn't solve all of 3Com's problems but it did allow 3Com to refresh and expand almost its entire data product line which includes the switch 12500 which rivals the high end products from companies like Brocade, Force10 and Cisco. The problem is that most large enterprises wouldn't consider a high end switch like this from 3Com because of historical issues that continue to plague 3Com. The acquisition of 3Com adds not only high end switching but also a broad routing portfolio, VoIP, the security products from Tipping Point, strong management software and IP surveillance products.
So while this acquisition doesn't fill all the product gaps that HP has (it's still missing WAN optimization, midrange videoconferencing, application delivery controllers to name a few) it does go a long way into addressing most of the networking portfolio. Additionally, if HP chooses to invest in the NBX and VCX VoIP products (and I think it should), it could become a strong player in that market as well creating a second vendor that could deliver an integrated voice and data portfolio.
Additionally, the networking industry really hasn't had a true #2 vendor in over 10 years. Once Nortel fell apart, no one really jumped up and grabbed that share. Today, both Nortel and 3Com claim the number two position and depending on whose numbers you use, they're both right. Regardless of who was #2, the combined companies will have a share in the switching market of approximately 20% of the ports shipped (Cisco has just over 50% of the ports). While having share alone won't convince anyone to switch away from Cisco, it does create a credible alternative for customers that want to look at one. Additionally, while much of Cisco's strength lies in its loyal, Cisco tattoo-wearing engineer base of buyers that wouldn't consider buying anything but Cisco, HP has loyalties on the compute side of the IT house. As networking and IT continue to come together through broader use of virtualization and cloud computing, the compute buyers will start to have some influence, so having more product to sell, puts HP in a better position.
This puts the rest of the industry in a tough position. Most of the other vendors compete for what's known as the "ABC" or anything but Cisco market and target customers that don't want to buy everything from one company and as long as no one vendor stood out, everyone was on even footing. Well, that's changed now as HP-3Com has put HP in the position to be #2. In fact, I think HP should buy the networking business of Nortel from Avaya (whenever the deal closes) and bring in the #3 vendors (Nortel still has about 5% share) and continue the roll up.
A few vendors like Brocade who have unique differentiation through its storage networking business and Juniper who has the potential if it delivers on Stratus sooner than later won't be affected too much but for the likes of Extreme and Enterasys, the ABC buyer may not come your way as often. I would actually like to see HP continue to acquire and continue to put pressure on Cisco in other markets. The arms race that these two companies will get into will continue to push the envelope on what the role of the network is and that's good for all the buyers of network equipment.
So Cisco, we all await your next move and for HP, welcome to the converged voice and data market.
