Hewlett Packard Development Company LP and 3Com Corp. fit remarkably well together when considering the target markets that drove them together in this week's blockbuster $2.7 billion deal: core Ethernet switching and China. But most of the rest – low-end, SMB and edge switching, plus wireless networking – faces considerable overlap.
Fortunately for HP, the overlap should be a minor distraction to what the company views as the real big game: next-generation data centers, where unified switching fabrics, virtualization and consolidated compute/storage and networking operations will drive spending into the next decade.
With the 3Com buy, HP inherits the S 12500 and S 5800 data center core and aggregation switches. Up to now, HP could not address high-density aggregation and core switching applications in data centers.
3Com also brings enterprise edge and core routing to HP.
"It gives us an edge-to-core [story] that we didn't have before," says Marius Haas, senior vice president and general manager of HP's ProCurve Networking business.
Once the 3Com deal closes next year, HP will own scores of next generation data centers in China, where HP operations are already strong – the company just posted a fourth quarter hike in revenue and profit thanks largely to business in China. HP will then set its sights globally to fend off Cisco Systems Inc. and its Unified Computing System (UCS), which threatens to encroach on HP's blade server turf. It is this, plus 2,400 networking engineers in China that drove the marriage with 3Com.
"HP will be building a credible alternative to UCS, which is where a lot of the action is in data centers right now," says Rob Whiteley of Forrester Research. "The gloves are off and these two will make great competitors in the long run."
Do HP, 3Com value claims trump Cisco?
HP and 3Com personnel further from the data center action have to be quivering though. Both companies are hallmarks in low-end and SMB networking where product rationalization will be most significant.
HP's low-end Ethernet switch line-up is virtually identical to 3Com's: a variable mix of stackable and standalone fixed-configuration and modular Layer 2 and Layer 3 10/100/1000/10000Mbps Ethernet managed and unmanaged, PoE and non-PoE switches for practically any edge or campus application. Both companies have been competing fiercely in this market based on low price, simple features, ease-of-use and lifetime warranties.
HP will have to base its rationalization decisions on which product line is newer and more feature-laden, analysts say.
"Whoever has newer/faster/better/more will get the nod," says Steve Schuchart of Current Analysis.
That will be a tall task given the rapid pace of enhancements and extensions HP and 3Com have been unveiling on their low-end switches over the last several years, such as Gigabit Ethernet and POE Plus.
Specifically, will there be a fit for both HP's ProCurve 8212 and 5400 series switches, and 3Com's S7500E and S7900E? How about the ProCurve 2910 and 3500 vs. 3Com's 4500G and 4800G, which all support comparable port densities and price?
Would HP really be willing to part with any of its ProCurve line?
"It will be interesting to see what HP keeps because the 3Com portfolio has been developed over the last 18 months, it's more recent," says Zeus Kerravala, an analyst at the Yankee Group. "I expect to see most of the 3Com portfolio live."
HP says the integration issue will be an easy one due to standards compliance and what it views as little to no overlap.
"These are open products that can interoperate with any other product that is already available in someone's network," said David Donatelli, HP's executive vice president and general manager of Enterprise Servers and Networking, during a conference call this week on the acquisition. "And again, due to the fact that there is very little overlap, these products complement themselves very well. So we are ready to go to market day one with the portfolio."
Another area of direct HP/3Com overlap is in wireless LANs. That product rationalization should be much easier, however.
3Com has an OEM arrangement with Belden Inc.’s Trapeze Networks unit, but HP bought Colubris last year. Naturally, HP is expected to continue on with the Colubris product line.
But there are also product synergies in addition to core switching and edge routing. HP inherits a VoIP product line in the 3Com NBX and VCX IP PBX and handset portfolio.
3Com has less than .5 per cent share of the total $16 billion enterprise telephony market however, according to Dell'Oro Group; but that's still more than the 0 per cent HP has, which up to now addressed the market through partnerships with Avaya and Microsoft, among others.
"I think they'll continue to partner with Microsoft and Avaya, but I think they should keep [the 3Com VoIP products] and refresh them," Kerravala says.
And 3Com's TippingPoint business gives HP security products it either had to partner to obtain or could not offer customers at all. TippingPoint's product line consists of threat management and intrusion prevention appliances installed in 30% of the Fortune 1000.
"This is huge for HP, it gives them legitimate network security," says CurrentAnalysis' Schuchart.
The enterprise edge routers HP obtains from 3Com are those in the MSR line. MSRs feature a Linux-based server blade for running open source applications like IP PBX, security and WAN optimization, much like Cisco's wildly successful ISR series platforms.