HP network strategy : $2.7 billion acquisition of 3Com steps up Cisco competition

HP, the world's biggest personal-computer maker, plans to buy 3Com for $2.7 billion, stepping up competition with Cisco in the computer-networking market. Both 3Com and Cisco make network routers and switches. 3Com shareholders will receive $7.90 a share in cash, 39% more than today's closing price. Hewlett-Packard selected 3Com partly because of its presence in China. 3Com has 2,400 engineers in China who will join HP to work on research and product development.

HP CEO Mark Hurd is seeking to add to HP's $118 billion in annual sales, expanding into markets that offer higher profit margins than printers or personal computers. HP bought more than 30 companies since he took over as CEO in 2005. HP already expanded its computer-services business last year with the $13.2 billion takeover of Electronic Data Systems.

- You step into my turf, I step into yours. That looks like HP's new strategy. With Cisco making moves into HP's server territory, HP's response is to move into Cisco's network territory. All very interesting, but it might take a while for customer perceptions to shift. After all, as a individual consumer, I might buy HP printers, HP PC's, or HP laptops, but would I, as an *enterprise* customer, specify HP network equipment intead of Cisco's, for an upcoming project or tender/bid? For now, I am not quite sure about that at all. Unless they are able to deliver compelling price/performance figures and even then enterprise customers might want to wait until it has been, how shall I put it, "combat proven" out in the field. Which, of course, creates a classic chicken-and-egg problem.

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