Update: HP acquires networking vendor 3Com

The $2.7 billion deal boosts HP's Converged Infrastructure datacenter strategy

Hewlett-Packard has agreed to buy 3Com for about $2.7 billion, pushing forward the giant IT vendor's strategy for combining computing, storage, services and networking under one roof.

The deal has been approved by both companies' boards of directors and is expected to close in the first half of next year. HP is offering $7.90 per share for 3Com, about $2 per share above the stock's price of $5.69 at the close of trading on Wednesday. U.S. and foreign regulatory approvals will be required, the companies said.

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3Com will add to HP's Ethernet switching portfolio, which is already a growing competitor to Cisco Systems, and add routing products to its lineup.

"Companies are looking for ways to break free from the business limitations imposed by a networking paradigm that has been dominated by a single vendor," said Dave Donatelli, executive vice president and general manager, Enterprise Servers and Networking, at HP, in a prepared statement. "We will enable customers to build a next-generation network infrastructure that supports customer needs from the edge of the network to the heart of the datacenter."

The acquisition will also give HP access to a research and development team and strong sales channels in China, where 3Com operates the H3C subsidiary it originally formed as a joint venture with Huawei Technologies. The deal would also bring in 3Com's TippingPoint line of intrusion prevention products.

As datacenters are centralized and virtualized, the largest IT vendors are pursuing datacenter strategies that span all parts of what is increasingly a single infrastructure of networks, storage, computing and software. Cisco's introduction of servers earlier this year made it a more direct competitor to HP as well as IBM. HP's own ProCurve networking line has already gained ground on Cisco in enterprises over the past few years.

3Com has trailed the dominating Cisco in the networking arena since the late 1990s and has pursued several different strategies to find its place in the market. Its TippingPoint acquisition gave it a strong position in intrusion prevention, and the company has also focused on networking gear for small and medium-sized businesses.

HP plans to combine 3Com's enterprise network core and security products with its own offerings for the edge of the network to form an end-to-end portfolio, Donatelli said on a conference call about the deal.

"Every customer I speak to has asked us to do more networking," Donatelli said. There is little overlap between the two companies' products, and it will be easy to integrate them because both companies adhere to industry standards, he added. "We're ready to go to market day one with a portfolio," Donatelli said. HP executives declined to discuss what brand the products would carry until after the deal has closed.

The purpose of the deal is focused on the traditional enterprise market, not service providers, HP said.

3Com, which once left the enterprise networking business altogether, has had trouble regaining ground in most of the world because it didn't have enough sales and marketing scale, Donatelli said. HP has examined 3Com's products and found them compelling enough that it plans to build all of its own networking infrastructure from the combination of 3Com's gear and its own, he said.

The deal will give HP the network parts it has needed in large enterprises, along with the power of a well-known name, analysts said.