If Hewlett Packard Development Company LP acquires 3Com Corp., HP will probably keep its ProCurve division but stop making its own enterprise routers, a Canadian analyst said.
“In the router area they will probably do away with the HP ProCurve product line,” said Ronald Gruia, Toronto-based program director for emerging telecoms at Frost & Sullivan, a San Antonio, Tex.-based research firm.
Palo Alto, Calif.-based HP announced Wednesday a friendly takeover offer for Marlborough, Mass.-based 3Com. The agreement has yet to be approved by shareholders of either company but another Canadian analyst thinks the move will cause alarm within the San Jose, Calif. headquarters of the vendor that dominates the switch and router market, Cisco Systems Inc.
"Cisco should probably be scared," said Mark Tauschek, lead analyst at London, Ont.-based Info-Tech Research Group. "HP is probably one of the few if not the only company that can compete against it and make a dent in Cisco’s dominance in the enterprise space."
On a conference call Wednesday evening, HP executives declined to discuss what brand the products would carry until after the deal has closed.
Gruia said HP only has 0.2 per cent of the enterprise router market, whereas 3Com has 2.6 per cent.
ProCurve's main focus is on switches, including the 2520 Layer 2 series, available with either eight or 24 ports.
But it also makes the Secure Router 7000dl series, designed for small to mid-sized firms and enterprises with branch offices.
HP ProCurve also entered the blade switching market last month with the 6120XG and 6120G, which come in one rack unit size and are designed for HP's BladeSystem enclosure.
HP's network security products currently include the ProCurve Threat Management Services (TMS) zl Module, made for ProCurve 5400zl and 8212zl series switches, which includes a firewall, intrusion prevention system and virtual private network concentrator.
“HP ProCurve does not have as robust a product offering for large enterprise or data centre environments,” Gruia said. “3Com is one of the only enterprise networking vendors besides cisco with switches, routers, security, everything. 3Com believes they provide 30 to 40 per cent lower total cost of ownership” than Cisco.
He added HP will gain an advantage because of 3Com’s intrusion prevention system (IPS) products, which it inherited when it acquired TippingPoint.
3Com will add to HP's Ethernet switching portfolio, which is already a growing competitor to Cisco Systems Inc., and add routing products to its lineup.
"Every customer I speak to has asked us to do more networking," said Dave Donatelli, HP's executive vice president and general manager of enterprise servers and networking, in a prepared statement. There is little overlap between the two companies' products, and it will be easy to integrate them because both companies adhere to industry standards, he added. "We're ready to go to market day one with a portfolio," Donatelli said.
But the networking manager of a Canadian law firm says there will be overlap between the ProCurve and 3Com products.
“Unless they move quick to sift through the overlap and take the best of both worlds and make them one, they run the risk of losing loyal customers to either brand,” said David Komaromi, national manager of infrastructure and network services for Toronto-based Fraser Milner Casgrain LLP. “HP has this from the Compaq days, where the brand seemingly still exists.”
Komaromi, who made his comments in an e-mail to Network World Canada, was referring to HP’s acquisition of Compaq in 2001.
Robert Whitely, vice-president and research director for security and risk at Forrester Research Inc., believes three-quarters of the impetus of the HP-3Com deal it to expand HP’s business in China. The most valuable 3Com asset is its H3C joint venture with Huawei Technologies Co. Ltd. in that country and the US$700M in revenue it pulls in, he wrote in an e-mail interview.
Cisco made waves earlier this year in the data centre market when it announced its Unified Computing System servers.
“Cisco and HP have been on a collision course ever since Cisco entered the data centre market,” Gruia said, adding now HP will be “competing with Cisco on all fronts.”
Drue Reeves, vice-president of data centre research at Midvale, Utah-based Burton Group, noted there are now two companies that can seriously challenge Cisco: A merged HP-3Com, and Brocade Communications Systems Inc., which bought Foundry Networks Inc. last year for US$3billion. As a result, customers could see more competition and better choice of products.
“It really puts pressure on Cisco if HP can become a bigger competitor, because now they can get their servers and their storage and their networking from one play,” he said. “Cisco, even with UCS is still missing a little bit of that storage piece."
This, Reeves said, is why Cisco joined VMware Inc. and EMC Corp. in a data centre virtualization coalition.
"Even with UCS, they don’t have the product depth and breadth in server-land that HP does," Reeves said of Cisco. "So it’s kind of a race to see who shores up their product portfolio first – will HP shore up its networking portfolio first, or will Cisco have more servers to challenge HP?”
Although Gruia does not believe HP will drop the ProCurve brand, the 3Com acquisition will allow it to push more ProCurve products, especially in China.
“Cisco has a very broad networking portfolio but obviously for HP to have a complete network offering they will have to OEM, acquire or partner,” Gruia said, meaning without an acquisition, HP would have had to contract production of products it does not already make to another manufacturer.
Whiteley said if the deal goes through HP will pick up significant hardware assets from 3Com. The TippingPoint security products would give HP a “tremendous asset” to more tightly integrate with the smart infrastructure that HP is building, he wrote. HP’s ProCurve division has a core switch, but it didn’t gain a lot of traction, he said. With 3Com, HP gets a much more scalable switch that is a better fit for high-end datacenter and cloud networking initiatives.
In addition, he said, H3C-made routers could plug a hole in ProCurve’s line. On the other hand, he added, that isn’t a big deal since the majority of enterprise refresh is on Layer 3 switches, which are more relevant in the datacenter – and, he added, where Cisco doesn't have quite the stranglehold it does on routers.
The HP deal “is clearly about competing with Cisco,” he concluded. “The gloves are off and these two will make great competitors in the long run. I'm still confused about some of the whitespace (i.e. video, collaboration, and mobile carrier infrastructure) that are still big gaps where HP falls short from Cisco. However, HP will be building a credible alternative to UCS, which is where a lot of the action is in data centres right now.”
Tauschek agreed.
“This has got to have (Cisco CEO) John Chambers a little bit uneasy.”
With files from Stephen Lawson and Howard Solomon