HP splashes $3.1 billion on 3Com

HP is moving into the network-equipment market by striking a $3.1 billion deal for 3Com Corp, in a major challenge to Cisco.

By buying 3Com, HP will be competing with Cisco on a wider range of network equipment, including routers and switches. 3Com also has a large presence in China and can help HP expand sales into one of the world’s fastest-growing markets.

“Cisco and HP are going to compete more and more,” says Jayson Noland, analyst at Robert W. Baird & Co. “We’re headed to a world where each of these large companies can give you everything you want.”

HP is already a dominant force in personal computers, IT services, servers and printers, with recurring revenue streams that have helped it during the economic downturn.

We’re headed to a world where each of these large companies can give you everything you want

3Com, for its part, has been pushing into the large enterprise market outside China with its H3C brand, trying to take on giants like Cisco.

“We wanted to create a powerhouse in the networking industry,” says Marius Haas, senior vice president of HP’s ProCurve networking division, adding that the 3Com deal puts HP in a good position to compete against Cisco.

Dave Donatelli, general manager of enterprise servers and networking at HP, claims the company scoured the networking industry for potential targets before settling on 3Com.

“I think very clearly here we bought this to grow, and there’s no two ways about that,” he said on a conference call.

The terms of the 3Com deal were approved by the boards of both companies, but needs shareholder approval. The deal is expected to close in the first half of 2010.

The deal is the latest sign that technology giants from IBM to Oracle are increasingly encroaching in each other’s markets as they seek to become one-stop shops for computing, networking and data storage. Cisco itself this year pushed into the server market, of which HP is a major player.