HP's 3Com acquisition: An inside look

Cup of coffee leads to $2.7 billion HP-3Com blockbuster

HP ProCurve GM Marius Haas reveals the behind-the-scenes story of how HP and 3Com came together in a $2.7 billion merger that combines Ethernet switching, security and other data center gear.

It started with a cup of coffee between 3Com President/COO Ron Sege and HP ProCurve chief Marius Haas a year ago.

It ended with this week's $2.7 billion blockbuster acquisition of 3Com by HP. In between were regular dialogue and updates, a demonstration at Interop last May, a technology bake-off in HP labs, and then an offer.

The rest, as they say, is history.

Read an earlier interview with HP's Haas about the ProCurve business 

"A year ago, Ron invited me to have a cup of coffee and was telling me about all the things they had in the works and how excited he was, and how in order for them to be successful they needed to align with a strong partner like HP," Haas said this week in an interview with Network World. "My reaction was good, interesting, let me go back and think about it."

Haas did -- and what he discovered were some glaring gaps in HP's own product line and road map.

"More and more I got to realize that in order for us to do it organically it would take longer than I was comfortable with," he said. "And the market opportunity is now."

Six months ago, HP started to look at all of the alternative available to it to fill those product gaps: acquiring Brocade or OEMing its Foundry Networks switches; acquiring Extreme Networks or Force 10 Networks; bidding for Nortel's enterprise business; and other options. One that was likely not considered was an arrangement with Cisco, which had just stomped on HP's toes by entering the server market at about the same time Haas was evaluating his product expansion options.

3Com rose to the top in that evaluation. Then at Interop in May, Sege and Haas met again. Haas had just put down the gauntlet that HP was prepared to become the clear alternative to Cisco in networking and 3Com was ready to expand beyond China with the availability of its H3C S 12500 core data center switch.

"We compared notes on how synergistic the product portfolios are and that again stirred up the conversation," Haas said. "They were looking for a provider that could provide consistent services around the globe and the ability to reach a broader set of customers outside of where they had tremendous success, which was in China."

HP two months ago set up a test combining its ProCurve switches with 3Com switches and routers in a prototypical data center/large enterprise architecture. HP evaluated network stress, high availability and scalability.

"I felt very, very comfortable that this was industry leading from a performance standpoint, from a density standpoint, from a power management and cooling standpoint, and also from a total cost of ownership perspective," Haas said. "And it mapped perfectly on to what we were doing."

3Com was also further along in development of FibreChannel-over-Ethernet (FCoE) switches for next-generation data centers unifying compute and storage networks, Haas said. HP had not yet detected a vibrant market for FCoE so it put its priorities elsewhere while entering into an OEM arrangement with Brocade for an FCoE switch.

From there, more detailed conversations between Haas and Sege, and other top-level HP and 3Com executives commenced. And HP began the due diligence process as a prelude to an acquisition offer, and made the commitment to deploy 3Com in its own global network and data centers alongside HP's own gear.

"[HP CIO] Randy Mott is ecstatic about how he can outfit the whole HP next-generation data center with an HP-only architecture," Haas said. "We're going to make sure we become our own best showcase."

And what excites Haas most about the 3Com marriage? Is it the technology? The Chinese market? Or the 2,400 networking-specific engineers in China?

"It's a combination of all of that," he said. "China is a very big [networking] market that we can go after. It's actually a bigger market than the server market and a bigger market than the storage market. So you can imagine how excited we are in coming at it from a position of strength, a differentiated value proposition that customers are asking for right now. That's what makes this exciting. We've got a lot of work to do so we're going to be focused on execution but we really like our position here." And what would Haas say to competitors like Cisco?

"We're here to build a networking powerhouse and we're determined to make the investments to make that happen."

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