Financial analysts see HP's pending purchase of 3Com as a threat to Cisco because it means 3Com Ethernet switches that are inexpensive and very popular in China will have better access to U.S. businesses via well-established HP sales channels.
"We see HP's acquisition as primarily a response to Cisco's converged network/CPU strategy," writes Catharine Trebnick, an analyst with Avian Securities. "With Cisco owning the bulk of the enterprise Ethernet market, they have the most to lose if HP is successful in integrating the 3Com portfolio."
Trebnick says HP's 3Com acquisition is filling a gap in its high-end networking to better compete with Cisco, and that 3Com's success in China will be a boon to HP. "Our conversations indicate that HP is well on its way to successfully maintaining [3Com's] China presence," she writes in a memo reacting to news of the deal.
Nikos Theodosopoulos and Jack Monti of UBS Warburg write that Cisco faces a long-term threat from the beefed-up HP because it could come at Cisco with aggressive pricing. 3Com's plan has been to sell its low-cost H-3C gear that is popular in China in countries around the world, they say. Trebnick is also optimistic that HP can use its established sales channels to expand 3Com's market share in North America where "success has been limited."
"This acquisition has negative implications for every other provider of networking equipment," Trebnick says, spelling out some specifics, with Cisco being the main target with the most to lose by the new HP.
She says it seems logical that if HP wants to compete with Cisco on all fronts, it needs to make more purchases, possibly Avaya for unified communications and Polycom for telepresence and videoconferencing gear.
The deal is bad news for Brocade, she says, because HP sells Brocade storage gear under the name StorageWorks and might have hoped to make inroads with its Ethernet gear as well. But she writes that 3Com has been doing R&D on fibre channel over Ethernet, "raising the possibility that HP may build that functionality organically."
Juniper is not affected as directly, she says, but if HP becomes stronger with corporate customers, it could blunt Juniper's momentum in enterprise sales.
Ittai Kidron and Joseph Park of Oppenheimer write that it is now unlikely that HP will try to buy Brocade, and also calls into doubt possible OEM relationships with Brocade and Juniper for data center switching and fibre channel over Ethernet products, because HP will probably try to develop this equipment in-house.
Near-term, though, the deal could be good for Cisco as well as Juniper and Brocade because integrating 3Com into HP will be disruptive, Kidron and Park write.
Analysts were impressed with 3Com's success in China, with Trebnick noting the Chinese government and corporate customers represent 30% of 3Com revenue, and Theodosopoulos and Monti noting its claim to 300 of the top 500 enterprises in China and a low-cost R&D center in that country.
Still, if HP wants to offer a complete array of network offerings it will have to make other purchases, strike OEM deals or develop its own technology, Theodosopoulos and Monti write in their bulletin about the deal.
In general, the purchase reduces the probability of other large networking mergers and acquisitions in the near term, they write, and that is likely to put pressure on the price of stocks of other companies they think might be acquisition targets, naming Brocade and F5. They also think that IBM is unlikely to buy networking vendors in the near term because it has OEM deals in the works with Juniper and Brocade that aren't fully up and running yet.