A huge surprise (for some of us, at least) was yesterday’s announcement of HP’s intent to acquire 3Com. This is obviously intended to give HP more in the way of critical mass to take on the 800-lb gorilla Cisco in enterprise networking, and it gives 3Com a way to accelerate the sales of its products through HP’s enormous sales channels. A huge win for both companies that should make Cisco fearful, right?
Well, not so fast. To understand some of the challenges associated with this merger requires some knowledge of 3Com: it’s not “your father’s 3Com” that ungraciously dropped out of the enterprise market almost a decade ago. Instead, think of 3Com as mostly “H3C,” a joint venture between US-based 3Com and Chinese Huawei – the huge networking company originally started by the Chinese government (the Chinese army, actually). Not long ago 3Com bought out Huawei’s stake in H3C to achieve 100% ownership of the previous joint venture. (Huawei continues as a very successful global network equipment vendor, but focused mostly on carrier/service provider rather than enterprise products and sales.)
So today’s 3Com is mostly a US-led marketing operation married to a Chinese product development organization with thousands of typically low-paid Chinese engineers. 3Com has succeeded in selling its enterprise networking gear to Chinese companies, but has been less successful in selling its extensive product line to US or European firms. That’s where HP’s huge distribution has the potential to make a big difference.
So what are the major challenges associated with a combined HP/3Com? First, there’s a significant amount of product overlap. HP’s ProCurve networking division (out of Roseville, CA near Sacramento) already has an extensive Ethernet switching product line, and wireless LAN products through the recent acquisition of Colubris. 3Com (through H3C) has all this and more, including high-end data center Ethernet switching, a broad set of other Ethernet switches, WAN routers, wireless LANs, etc. 3Com fills in a few of HP’s missing pieces (such as enterprise-class routers), but many of their products compete with each other.
More recently it seemed that HP was trying to eliminate much of the autonomy of its ProCurve networking division, and create more synergy with HP’s data center server product line – probably a smart move given the recent growth in data center networking. But the ProCurve product line lacked a data center Ethernet switch analogous to Cisco’s Nexus line with support for FibreChannel SANs or FCoE. Now 3Com is going to supply data center networking gear? 3Com will have to work closely with HP’s server folks to create a converged data center infrastructure that can compete with the Cisco/VMware joint venture? Hmm…
Another major challenge of a combined HP/3Com to take on Cisco has to do with channel strategies. Both HP and 3Com have principally targeted SME (small to mid-size enterprise) markets via mostly indirect sales channels and multi-tiered distribution. In contrast, many Cisco customers are larger enterprises that expect and are accustomed to direct sales and support from their networking vendor. How will a combined 3Com/HP sell a broad range of networking products to these larger customers? HP’s acquisition of EDS may help here, at least where networking products are bundled into a network systems integration effort. But EDS consultants are unlikely to have much knowledge of 3Com products – they’ve historically installed Cisco routers as part of their customer networks.
So the bottom line is that while an HP/3Com deal may create greater competition for Cisco, it’s not likely to threaten Cisco’s dominance in large enterprise accounts – not unless HP can apply considerable effort and transformation to successfully address product overlaps, cultural differences, and channel shortcomings.
A more significant result of the 3Com acquisition is likely to be increased pressure on other network equipment competitors to merge. How will Juniper, Extreme, Enterasys/Siemens/Gores, Brocade, and others respond to this? Stay tuned…
- Dave Passmore
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