INSTANT VIEW: HP in $2.7 billion deal to buy 3Com

NEW YORK Thu Nov 12, 2009 8:11am EST

NEW YORK (Reuters) - Hewlett-Packard plans to acquire network equipment maker 3Com in a $2.7 billion deal, banking on the acquisition to improve its position in China.

HP also reported preliminary quarterly profit and revenue that beat analysts' expectations.

COMMENTARY

MARK FABBI, ANALYST, GARTNER

"I definitely think it's a good deal for HP. In my mind, this fills a glaring hole they had in the portfolio, which was for high-end switching. Without that they were locked out of a huge number of deals, hundreds of millions of dollars worth of deals because they weren't even getting considered.

CHARLES KING, ANALYST, PUND-IT INC

"I think we are seeing HP attempting to do with 3Com what they previously attempted to do with the EDS acquisition: They are attempting to buy their way into being more competitive in markets where they have a fairly thin or minimal presence.

"In the case of networking, HP does have some of its own technologies that it has been promoting in place of Cisco technologies and other technologies.

"This demonstrates that HP is very serious about the networking space. The fact that they are willing to put nearly $3 billon dollars where there mouth is suggests that this is not a fly-by-night strategy.

"That being said, the products that 3Com brings to the table are not as broadly deployed or as technologically deep as Cisco's. Still, it's a good move for HP to make if they want to play seriously against Cisco and get up to speed very quickly."

FRED HICKEY, EDITOR OF THE HIGH-TECH STRATEGIST NEWSLETTER

"It makes a lot of sense. Hewlett-Packard has been making great inroads into the networking market. By buying 3Com they get more market share and a product line that's pretty well thought of. They also get access to a lot of cheap labor in China. And they're not paying a big price for it."

JAYSON NOLAND, ANALYST, ROBERT W. BAIRD & CO

"I would say it's not a huge surprise. HP has been pushing pretty hard to improve the relevance of their own networking asset and this helps them extend their scale.

"It's part of a broader theme where there's a lot of talk of convergence in the data center. Cisco and HP are going to compete more and more.

"We're headed to a world where each of these large companies can give you everything you want."

BRENT BRACELIN, ANALYST, PACIFIC CREST SECURITIES

"It's clearly not a huge surprise. For a year now we have been kind of talking about the clash of the titans as Cisco, a historic partner of HP, started to develop and build their own server, network product.

"Seems like it was an inevitable move. The debate wasn't on whether HP would do something, the debate was on who HP would buy.

"This HP's first major move on the networking side of things. 3Com is large enough in size and scope that will more than double the size of HP's networking business.

"HP has almost a billion dollar networking procurve business today. The 3Com acquisition will more than double the size of that business"

EDWARD HEMMELGARN, PRESIDENT AND CHIEF INVESTMENT OFFICER,

SHAKER INVESTMENTS

"I think this is reflective of what's going on. The big guys have a lot of cash and the price for smaller companies is unrealistic. It's an accretive transaction and it makes a lot of sense.

"It's a merger of weakness on 3Com's part. They had to merge with someone, they're not the tough competitor they used to be. HP has easy access to capital, there's no private equity competition, so it was easy for HP.

"In a larger sense, M&A is indicative of improving economic conditions. Markets have stabilized and companies have more confidence. Large companies see this as a chance to fill in their portfolios. That's what driving a lot of the M&A activity. We're going to see more of this, not less."

SHANNON CROSS, ANALYST, CROSS RESEARCH

"It gives HP additional scale within the low-to-mid tier wireless and networking market. It matches up with HP's switches that compete with Cisco.

"What HP likes to do is take assets with a good market share in their respective markets, then leverage HP's brand and distribution to really grow the business.

"3Com has about 55 percent of revenue from China, which is going to expand HP's reach into that country. That's a positive.

"The pre-announcement is good. The numbers are solid. HP is able to leverage its solid reach into the consumer market and then its strong and growing portfolio on the corporate side."

AARON RAKERS, ANALYST, STIFEL NICOLAUS

"3Com has about a 3 percent to 5 percent share in the enterprise ethernet switching market. I think there's been some expectation that Brocade was going to be a fit with HP.

"I don't think it's a surprise that HP's doing something. I think it's a little surprise that it is 3Com though."

LOU MISCIOSCIA, ANALYST, BRIGANTINE ADVISORS

"HP has started to find success competing in the communication space. It has been has been competing with Cisco. To that degree this is also something in that category."

(Reporting by Laura Isensee in Los Angeles, Yinka Adegoke and Ryan Vlastelica in New York, Gabe Madway and Alexei Oreskovic in San Francisco, and Jim Finkle in Boston; Compiled by Paul Thomasch)

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