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HP Buys One of the Seven Networking Dwarves and Gets a Bargain

Sure HP paid a slight multiplier premium on 3COM trailing revenues or a slight small multiplier on their market cap

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Last week EMC and Cisco announced their VCE collation and Acadia.

The other day, HP continued its early holiday shopping by plucking down $2.7B USD and bought 3COM, one of the networking seven dwarfs (e.g. when compared to networking giant Cisco). Some of the other so called networking dwarfs when compared to Cisco include Brocade, Ciena and Juniper among others.

Why is 3COM a bargain at $2.7B

Sure HP paid a slight multiplier premium on 3COM trailing revenues or a slight small multiplier on their market cap.

Sure HP gets to acquire one of the networking seven dwarfs at a time when Cisco is flexing its muscles to move into the server space.

Sure HP gets to extend their networking groups capabilities including additional offerings for HPs broad SMB and lower-end SOHO and even consumer markets not to mention enterprise ROBO or workgroups.

Sure HP gets to extend their security and Voice over IP (VoIP) via 3COM and their US Robotics brand perhaps to better compete with Cisco at the consumer, prosumer, SOHO or low-end of SMB markets.

Sure HP gets access to HC3 as a means of further its reach into China and the growing Asian market, perhaps even getting closer to Huawei as a future possible partner.

Sure HP could have bought Brocade however IMHO that would have cost a few more deceased presidents (aka very large dollar bills) and assumed over a billion dollars in debt, however lets leave the Brocadians and that discussion on the back burner for a different discussion on another day.

Sure HP gets to signal to the world that they are alive, they have a ton of money in their war chest, and last I checked, actually more cash in the 11B range (minus about 2.7B being spent on 3COM) that exceeds the $5B USD cash position of Cisco.

Sure HP could have done and perhaps will still do some smaller networking related deals in couple of hundreds of million dollar type range to beef up product offerings such as a Riverbed or others, or, perhaps wait for some fire sales or price shop on those shopping themselves around.

ROI is the bargin IMHO!

3COM was and is a bargain for all of the above, plus given the revenues of about 1.3B, HP CEO Mark Hurd stands to reap a better return on cash investment than having it sitting in a bank account earning a few points. Plus, HP still has around 8-9B in cash leaving room for some other opportunistic holiday shopping, who knows, maybe adopt yet another networking or storage or server related dwarf!

Stay tuned, this game is far from being over as there are plenty of days left in the 2009 holiday shopping season!

Read the original blog entry...

More Stories By Greg Schulz

Greg Schulz is founder of the Server and StorageIO (StorageIO) Group, an IT industry analyst and consultancy firm. Greg has worked with various server operating systems along with storage and networking software tools, hardware and services. Greg has worked as a programmer, systems administrator, disaster recovery consultant, and storage and capacity planner for various IT organizations. He has worked for various vendors before joining an industry analyst firm and later forming StorageIO.

In addition to his analyst and consulting research duties, Schulz has published over a thousand articles, tips, reports and white papers and is a sought after popular speaker at events around the world. Greg is also author of the books Resilient Storage Network (Elsevier) and The Green and Virtual Data Center (CRC). His blog is at www.storageioblog.com and he can also be found on twitter @storageio.

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