HP Agrees To Purchase 3Com For $2.7B

Hewlett-Packard stepped up the battle to gain a bigger share of the data center business by agreeing Wednesday to purchase networking-equipment maker 3Com for $2.7 billion in cash.

The deal, which represents a 53% premium over the closing price of 3Com shares on Wednesday, is expected to close in the first half of 2010.

HP said the combination underscores the company’s next-generation data center strategy built on the convergence of servers, storage, networking, management, facilities and services.

“Companies are looking for ways to break free from the business limitations imposed by a networking paradigm that has been dominated by a single vendor,” Dave Donatelli, executive vice president of HP’s enterprise servers and networking unit said in a statement. “By acquiring 3Com, we are accelerating the execution of our converged infrastructure strategy and bringing disruptive change to the networking industry.”

While HP is touting its move to bring “disruptive change” to the industry, Cisco started the ball rolling earlier this year when it announced it would begin manufacturing and selling servers in direct competition with former partners like HP, IBM and Dell. Earlier this month Cisco announced it had formed a joint venture with storage giant EMC called Acadia to combine networking, storage and virtualization technologies.

With the 3Com acquisition, HP believes it can compete without former partner Cisco for a share of the booming data center business. “We are confident that we can run our entire global business of 300,000-plus employees, including our next-generation data centers, entirely on the new HP networking solutions,” chief information officer Randy Mott stated.

HP also reported its preliminary fourth quarter results, which saw an 8% drop in revenue year-over-year to $30.8 billion. That was up 12% on a quarter-to-quarter basis. Chairman and Chief Executive Mark Hurd said the company was beginning to see a pick up in business, particularly in China.

The company raised its fiscal full year revenue guidance to $118 billion to $119 billion, up from its previous estimate of $117 billion to $118 billion.

This story was reprinted with permission from Information Management.