BEIJING, 12 NOVEMBER 2009 - Hewlett-Packard's acquisition of networking gear vendor 3Com will unlock a major new market for the company, taking its growing rivalry with Cisco Systems to China, analysts said Thursday.
The purchase of 3Com, which has refocused on China since falling behind in the U.S. market in the last decade, will give HP access to well-established sales staff and channels in China. 3Com has said about half of its revenue came from China in its 2008 fiscal year, largely due to the company's earlier absorption of H3C, a joint venture it had created with giant Chinese vendor Huawei Technologies in 2003.
HP said Wednesday that it would buy 3Com for about US$2.7 billion and expects to close the deal in the first half of next year. The deal will bring HP new routing and Ethernet switching products, helping round out its current networking product lineup to attract more enterprise customers worldwide. The move cranks up HP's competition with Cisco, whose core business is in networking gear, just as Cisco has challenged a traditional HP market by launching a line of servers earlier this year.
With the buy-out, HP is targeting growth in China even as it covers holes in its product line for developed markets, said Naresh Singh, a principal analyst at Gartner. HP's networking products have done well in the U.S. and Western Europe, but Asia and specifically China have been tougher for the vendor to crack, Singh said.
China had a US$1 billion market for enterprise ethernet switches last year, according to Gartner. Cisco took 49 percent of the market by revenue, while 3Com took about 28 percent through its former joint venture. HP's share was less than 1 percent, so it will gain substantially from the 3Com acquisition.
"The Chinese market is a very big opportunity for any vendor," said Singh.
One area where HP may increase its focus after the 3Com deal is China's energy sector, said Adam Jura, a senior analyst at Ovum. Gear from H3C is used in Chinese backbone networks including those for its energy and transportation sectors, giving 3Com strong ties in those areas, said Jura. HP could benefit, for instance, from potential smart power grid projects in China spurred by government funding, he said.
When asked in which sectors HP would get a boost from the buy-out, a company spokesman repeated HP's statement that the deal will significantly strengthen its position in China. He added that the 2,500 China-based engineers HP will gain from 3Com is one of the most attractive aspects of the deal. HP plans to make 3Com part of its networking business unit after the buy-out is complete, he said.
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