HP Acquires 3Com For $2.7 Billion

There were several options for HP to combat Cisco in the networking arena, including Brocade and Polycom. It looks as though they have chosen to go after Cisco front and center by acquiring 3Com. The latter has done a marvelous turnaround in the past three years. The stock has moved steadily up, and now HP is paying a 40% premium to make 3Com central to its networking strategy ($7.9 a share).

3Com’s China cost-structure has got to be the biggest driver, making it attractive for HP to hit Cisco where it really hurts. HP’s global channel will give 3Com’s products an excellent reach into the heart of enterprise and SME networks, as companies look to reduce total cost of ownership across the board.

Cisco’s margins will take a hit as competition strengthens. HP’s move is the most definitive indicator of what is to come.

P.S. I also believe that HP will acquire Brocade and Polycom subsequently.