Hewlett-Packard to buy 3Com for $2.7 billion

Hewlett-Packard Co. said late Wednesday that it will acquire 3Com Corp. for $2.7 billion in an effort to build up the computer giant’s offerings in networking, servers and storage.

The move also will pit Hewlett-Packard more directly against networking-equipment kingpin Cisco Systems Inc.

Hewlett-Packard said the deal, which values 3Com at $7.90 a share, was approved by the companies’ boards and should close during the first half of 2010.

The PC and printing giant wasn’t shy about how it sees the 3Com acquisition panning out.

“The networking industry is going to be completely transformed,” said Dave Donatelli, Hewlett-Packard’s executive vice president and general manager of enterprise servers and networking, on a conference call to discuss the acquisition.

Hewlett-Packard expects the deal will help it expand its offerings of products such as Ethernet switches and network routers, as well as increase its position in the Chinese market.

Analysts that follow the networking and data-center markets said the deal makes sense for Hewlett-Packard, which needed to fill out some holes in its ProCurve networking products.

“It’s definitely positive for Hewlett-Packard,” said Mark Fabbi of Gartner Inc. “3Com has a broad portfolio (of products) and is very complementary with Hewlett-Packard. It makes for a clear No. 2 player in networking.”

And with No. 1 being Cisco, Hewlett-Packard is possibly setting itself up for one of its biggest tech battles in years.

“H-P is definitely making a run at Cisco,” said Rob Enderle, director of the Enderle Group. “There’s a lot of value in 3Com’s intellectual property, and now H-P has an impressive weapon to take into the market.”

The acquisition will bring an end to 3Com as a stand-alone company after three decades in which it went from one of the founders of modern networking technology to the owner of Palm Inc. and then having its networking position eventually usurped by Cisco.

“3Com does have a long and venerable history,” said Roger Kay of Endpoint Technology Associates. “Enough so that they have enough technology to fill in the holes that H-P had.”

3Com was founded in 1979 and one of its founders, Bob Metcalfe, is credited as the inventor of Ethernet, the networking technology still used to connect many home and business computers with networks such as the Internet. When it merged with U.S. Robotics in 1997, 3Com acquired PDA maker Palm, and then spun out that company July 2000.

It was during 2000 that 3Com exited the high-end enterprise router business, virtually conceding the market to Cisco. The move upset many of 3Com’s corporate customers, and the company spent the better part of the next decade trying to regain its cachet in the networking industry.

3Com entered into a joint venture with Chinese networking company Huawei in 2003 in which 3Com rebranded and sold its products in China. The move helped 3Com climb back to respectability in the networking market, and the company’s position in China is considered one of the top reasons for Hewlett-Packard’s acquisition.

Hewlett-Packard’s Donatelli said as much on the conference call, citing what he said was 3Com’s more-than 30 percent shares of the networking market in China.

“This deal enables H-P to become a leader in one of the world’s fastest-growing and most-strategic IT markets,” he said.

Separately, Hewlett-Packard announced preliminary fiscal fourth-quarter earnings of 99 cents a share on $30.8 billion in revenue. During the same period a year ago, Hewlett-Packard earned 84 cents a share on $33.6 billion in sales.

Excluding one-time items, the company said it earned $1.14 a share. By that measure, analysts surveyed by Thomson Reuters had forecast it to earn $1.17 a share on $29.8 billion in revenue.

Hewlett-Packard is scheduled to deliver its full, fourth-quarter results on Nov. 23.

For its fiscal first quarter, Hewlett-Packard said it expects to earn 90 cents to 92 cents a share on sales in a range of $29.6 billion to $29.9 billion. Excluding one-time items, Hewlett-Packard estimates it will earn $1.03 to $1.05 a share.

Revenue for full fiscal 2010 will be higher, according to Hewlett-Packard ?about $118 billion to $119 billion from the $117 billion to $118 billion previously expected. Earnings for the same time frame are estimated in the range of $3.65 a share to $3.75 a share, from $3.60 to $3.70. These estimates do not reflect the possible impact of the 3Com acquisition.

(c) 2009, MarketWatch.com Inc. Source: McClatchy-Tribune Information Services.