HP Acquires 3Com, Tweaks Cisco's Nose, Tosses Gauntlet to IBM, Dell

Hewlett-Packard (HPQ) has announced that it is acquiring networking company 3Com (3COM) for $2.7 billion. The aggressive move counters expansions by Dell (DELL) into services and sometimes partner, sometimes rival Cisco (CSCO) into servers and just about every aspect of network-related offering it can acquire, as well as taking on IBM (IBM) on a more toe-to-toe basis.

HP has long been strong in the data center, has a consulting and services group that has become a financial mainstay, has a range of network management tools, and also a respectable printing and imaging group. In fact, much of its product lines are designed to hang off corporate networks. But until now, HP has stayed out of such hardcore network equipment as routers and switches. No longer. By acquiring 3Com, HP greatly expands its own more limited network equipment offerings for an end-to-end solution, from laptops and desktops, through connectivity equipment and enhanced management tools, into servers.

With almost $14 billion in the bank, it's an easy deal to swing. The last stock price I have available for 3Com is $5.69 a share, meaning a roughly 39 percent premium at a purchase price of $7.90 a share. Directors of both companies have already approved the deal.

This will shake up the competitive landscape in the enterprise IT market. Although Cisco has been trying to blur traditional equipment lines with its announcement earlier this year of its own servers, HP will have a strategic advantage in providing name, market-accepted equipment in all aspects of data center operations. This also gets HP into network security and will likely cause concern at both IBM and Dell, becoming a more well-rounded competitor for the former and pulling away from the latter.

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