HP will acquire 3Com for $2.7 bn - Corporate News

Technology firm Hewlett-Packard Co. (HP) said on Wednesday that it had reached an agreement to acquire 3Com Corp., a provider of computer network gear, for $2.7 billion (Rs12,555 crore) in a deal that HP plans as a springboard for an assault on the market leader in networking, Cisco Systems Inc.

In an interview, Ann M. Livermore, an executive vice- president of HP, described computer networking as a $40 billion-a-year market with high profit margins that is growing briskly and dominated by Cisco, which has so far had little head-to-head competition. “HP is eager and now positioned to disrupt the networking industry,” she said.

Competitive edge: HP chief executive officer Mark V. Hurd. Jeff Carlick / Bloomberg

The offer price, at $7.90 a share, is at a premium of about 39% to 3Com’s closing price on Wednesday. The deal was announced after the market closed.

Under Mark V. Hurd, its chief executive, HP has been beefing up its network equipment offerings to compete more aggressively against Cisco to sell data-centre gear to corporations. But so far HP has mostly supplied smaller equipment used in office networks.

Cisco attacked one of HP’s core businesses this year by entering the market for server computers used in data centres. It has also teamed with EMC Corp., another technology giant, to sell data centre equipment to businesses.

In 3Com, HP is acquiring a company with a rich heritage in network technology, analysts say. But it lacks Cisco’s size and credibility in the data centre market, where large corporate customers look for strong suppliers who can provide a full range of products and services. HP may well be able to fill those gaps.

“3Com, with HP’s backing, is capable of making a real run at Cisco,” said Rob Enderle, an independent analyst. But while 3Com will give HP crucial technology, further product development and marketing will be needed to compete directly with Cisco, analysts said. “It will be a two-year process to roll this out,” said Jeffrey Evenson, an analyst at Bernstein Research. HP also provided investors on Wednesday with an early look at its earnings for its fiscal fourth quarter, which ended in October, and raised its estimates for the next year.

HP reported a profit, excluding some items, of $1.14 a share in the fourth quarter, which slightly beat expectations of $1.12 a share, as compiled by Thomson Reuters.

Revenue in the quarter was $30.8 billion, down 8% from a year earlier. But the firm’s sales performance beat analysts’ forecasts by $1 billion.