HP's $2.7 Billion Purchase Is All About Cisco

By JORDAN ROBERTSON
|  Wednesday, Nov 11, 2009  |  Updated 4:30 PM PDT
View Comments (
)
|
Email
|
Print
HP's $2.7 Billion Purchase Is All About Cisco

Getty Images

SAN FRANCISCO - NOVEMBER 12: Hewlett-Packard CEO Mark Hurd delivers a keynote address at the 2007 Oracle Open World conference November 12, 2007 in San Francisco, California. Oracle Open World runs through November 15. (Photo by Justin Sullivan/Getty Images)

advertisement

SAN JOSE, Calif. (AP) -- Hewlett-Packard Co. said Wednesday it is buying the 3Com Corp. networking company for $2.7 billion, the latest move by the world's No. 1 personal computer maker to expand into more profitable areas than PCs.

      HP also raised its 2010 guidance and reported preliminary quarterly earnings that topped Wall Street's forecasts. The company didn't provide specific reasons for its better outlook, other than a statement from CEO Mark Hurd that "significant growth in China" and "solid execution" helped HP in the quarter.

HP's stock slipped 35 cents to $49.65 while 3Com's shares leaped $1.96, or 34 percent, to $7.65 in extended trading after the announcements.

3Com is a former Silicon Valley high-flyer whose fortunes faded after the dot-com meltdown a decade ago. Its proposed sale to a private equity firm and a Chinese partner fell apart last year over national security concerns.

HP's acquisition of 3Com is at once a shot at networking leader Cisco Systems Inc. and a reminder of how a flurry of recent maneuvers by technology heavyweights is straining old relationships.

HP has been trying to muscle into Cisco's turf with its ProCurve line of networking gear. While growing, it is a small part of HP's business, accounting for less than 1 percent of HP's $83.6 billion in revenue in the nine months ended July 31.

HP and Cisco have been longtime partners, but the two companies lately have been squaring off in areas in which they've never competed before. As HP pushes into networking, Cisco is pushing into computer servers.

It's a dynamic playing out across the technology world, particularly with database leader Oracle Corp.'s proposed $7.4 billion acquisition of Sun Microsystems Inc., the world's No. 4 server maker behind IBM Corp., HP and Dell Inc. That deal has been approved in the U.S. but is being held up over antitrust concerns in Europe.

Hardware companies are buying their way in to more profitable markets as their margins shrink with trends like cheaper PCs called "netbooks" and a shift toward cheaper servers catching on.

Companies especially want a piece of technology services, a market where IBM is strong.

HP expanded its own services business with the $13.9 billion buyout of Electronic Data Systems Corp., making its technology services group its biggest revenue and profit generator.

Dell Inc. recently bought Perot Systems Corp. for $3.9 billion, and Xerox Corp. bought Affiliated Computer Services Inc. for about $6.4 billion.

HP said the 3Com products will be folded into HP's own networking equipment business. HP said the deal will add new products to its line and help expand its presence in China.

HP also said customers want more than one vendor in a sector dominated by Cisco.

The company, based in Palo Alto, Calif., said it will give 3Com stockholders $7.90 per share. Both HP's and 3Com's boards have approved the deal, which HP expects will close in the first half of 2010.

3Com is based in Marlborough, Mass. In the most recent quarter, it had $290.5 million in revenue.

HP's preliminary report for the three months that ended in October showed the company earned 99 cents per share, compared with 84 cents in the year-ago period.

After adjusting for restructuring and other one-time items, HP earned $1.14 per share. Revenue fell 8 percent from the same period a year ago, to $30.8 billion. By both measures, HP did better than Wall Street was expecting, according to a Thomson Reuters poll.

HP said it now expects full fiscal year 2010 revenue of $118 billion to $119 billion. The previous estimate was $117 billion to $118 billion. Net income is expected to be $3.65 to $3.75 per share, or $4.25 to $4.35 per share excluding one-time charges.
 

Get the latest headlines sent to your inbox!
View Comments (
)
|
Email
|
Print
Leave Comments
Bay Area Proud
Bay Area Proud is NBC Bay... Read more
Follow Us
Sign up to receive news and updates that matter to you.
Send Us Your Story Tips
Check Out