HP to buy 3Com for $2.7 billion to advance Converged Infrastructure

By Kevin Komiega

-- Hewlett-Packard (HP) has delivered its second counterpunch to Cisco's Unified Computing System (UCS) in less than a week with the news that HP will shell out $2.7 billion to acquire networking vendor 3Com, as HP continues on its path toward data center convergence.

HP announced late Wednesday that it has entered into a definitive agreement under which HP will purchase 3Com at a price of $7.90 per share in cash, or an enterprise value of approximately $2.7 billion. The terms of the transaction have been approved by both the HP and 3Com boards of directors.

The acquisition comes just days after the debut of HP's Converged Infrastructure Architecture, a blueprint and set of products for virtualizing the data center, including compute, storage, networking and management resources.

Cisco has made noise in recent months with a similar architecture – the UCS. Cisco is in phase two of its attempt to virtualize the data center, as evidenced by last week's creation of the Virtual Computing Environment (VCE) coalition – a joint effort created by EMC, Cisco and VMware to provide virtualized building blocks (Vblocks) as the preferred foundation for next generation data centers.

HP execs expect the 3Com deal will "dramatically expand" the company's Ethernet switching portfolio, add routing products, and bolster its position in China via 3Com's H3C brand. 3Com also brings with it a line of network security products under the brand TippingPoint.

Dave Donatelli, HP's executive vice president and general manager of enterprise servers and networking, says the market opportunity for networking is approximately $40 billion.

Donatelli says the 3Com acquisition will immediately put HP in the number two spot (behind Cisco) in the worldwide networking market through the addition of 3Com's core switching, routing and security  products and add market share to the existing HP ProCurve networking product portfolio.

He also says the deal will hasten HP's delivery of a converged data center platform.

"One single product or one single stack of technology doesn't really make a data center. HP's move into the networking market is part of what we call HP Converged Infrastructure," says Donatelli. "Servers, internal storage, management infrastructure, power, cooling, and networking are moving into one infrastructure. Today's acquisition is a key part of underscoring our Converged Infrastructure strategy and will help accelerate our time to market."

3Com's most recent offering upon the altar of enterprise networking was the May 2009 introduction of the H3C S12500 data center aggregation and high-end enterprise core switch. The switching platform is said to deliver 2.2 billion packets per second (Bpps) of forwarding through a 6.6 Terabits per second (Tbps) non-blocking fabric, with up to 128 non-blocking 10-Gigabit or 864 non-blocking Gigabit Ethernet ports.

Under the terms of the merger agreement, 3Com stockholders will receive $7.90 for each share of 3Com common stock that they hold at the closing of the merger. The acquisition is subject to customary closing conditions, including the receipt of domestic and foreign regulatory approvals and the approval of 3Com's stockholders. The transaction is expected to close in the first half of calendar 2010.

HP anticipates that the transaction will be slightly dilutive to fiscal 2010 non-GAAP earnings.

Related articles:
HP strikes back with Converged Infrastructure Architecture
EMC, Cisco form cloud coalition with VMware
HP upgrades EVA arrays, SVSP

This article was originally published on November 12, 2009