HP to buy 3Com for $2.7 billion

Computer and printer giant Hewlett Packard (HP) has announced that it has acquired 3Com, a provider of computer network equipment, for $2.7 billion in a deal that is being widely viewed as an assault on networking market leader Cisco Systems.  Networking is a rapidly growing market, currently worth around $40 billion each year and dominated by Cisco, which thus far has come up against very little competition.  Palo Alto, California-based HP wants to use the acquisition to strengthen its position in the networking and data center sector. The deal more than doubles the size of HPÔÇÖs existing $1 billion networking business.  HP is the world number one in personal computers but is seeking to expand into areas that generate more profit. The companyÔÇÖs PC division accounted for nearly one third of total revenues over the past nine months, but for only 17 percent of its operating income.  HP has only recently taken over Electronic Data Systems Corp for $13.9 billion, an acquisition that made HP's technology services group the company's biggest generator of revenue and profit. The purchase was seen as a direct move to rival IBM in the services business. Marlborough, Massachusetts-based 3Com has a rich heritage in network technology and a solid product portfolio, according to analysts. HP expects to complement these strengths from its strong services, storage and server computer businesses.  HP also hopes to gain a firm foothold in the Chinese market. Half of 3ComÔÇÖs $1.3 billion in sales comes from China and according to HP, 300 of the largest 500 companies in China and 70 percent of government agencies use 3Com equipment.  ÔÇ£Companies are looking for ways to break free from the business limitations imposed by┬áa networking paradigm that has been dominated by a single vendor,ÔÇØ commented Dave Donatelli, executive vice president and general manager, Enterprise Servers and Networking, HP.  ÔÇ£By acquiring 3Com, we are accelerating the execution of our Converged Infrastructure strategy and bringing disruptive change to the networking industry.ÔÇØ ÔÇ£Our extensive product line and innovative technology together with HPÔÇÖs breadth and scale will expand our global opportunity,ÔÇØ added Bob Mao, chief executive officer, 3Com. Rival Cisco is competing against firms such as HP and IBM with a move into the computer servers market. Revenue in HPÔÇÖs fiscal fourth quarter, which ended in October, was $30.8 billion, down eight per cent from a year ago; however, the companyÔÇÖs sales performance beat analystsÔÇÖ forecasts by $1 billion. HP has also raised its forecast for its 2010 fiscal year, saying it expects revenue to total between $118 billion and $119 billion, up from its previous estimate of between $117 billion and $118 billion. HP has not confirmed whether or not any redundancies will be made at 3Com, which currently has 5,800 employees worldwide.  *┬á┬á┬á┬á┬á┬á┬á *┬á┬á┬á┬á┬á┬á┬á *