Implications of HP’s 3Com Buy for Other Networking Players

As I mentioned yesterday, HP didn’t get revolutionary, game-changing products and technologies from its $2.7-billion acquisition of 3Com, a company that has gone through more reinventions and market repositionings than Madonna.

In 3Com’s long and eventful history, it has gone from providing the original Ethernet adapters and hubs for enterprises and small businesses, to an acquisition of Chipcom for its chassis-based hubs and switches, to deserting the enterprise market entirely — even directing its jilted corporate customers into the outstretched arms of Extreme Networks.

Subsequently, after a dalliance with consumer markets, 3Com focused on the SMB space before coming back to enterprise markets in its H3C joint venture with Huawei.

That joint venture is now deceased, with 3Com having bought out Huawei’s interest. It now competes against its former partner for the patronage of customers in China and elsewhere. (This is an important point that some people have gotten entirely wrong. 3Com and Huawei no longer are partners in H3C. The loss of Huawei-related business in China represented a serious drag on H3C revenue and necessitated the “China Out” strategy that 3Com pursued.)

Nevertheless, 3Com was reborn on the foundation of cost-effective Chinese engineering, which I believe was a big draw for HP.

Putting all that aside, what does HP’s buy of 3Com mean for smaller vendors in the marketplace, those left out of this latest installment of industry consolidation?

Let’s start with Juniper, one of the bigger independent networking vendors still on the board. As long as it continues to build on its data-center strategy, and to strengthen its partnerships with IBM and Dell, it should survive HP’s onslaught.

Recently, Juniper underwent a rebranding and repositioning of its own, albeit not as dramatic or radical as some of 3Com’s transformations. Juniper overriding message is that it presents a flexible, intelligent, and open alternative to the closed, proprietary systems offered by data-center behemoths Cisco and HP.

To get that message across, Juniper has introduced open, programmable capabilities in its flagship JUNOS software. It also announced new JUNOS chips and systems, including the JUNOS One line of processors and JUNOS Trio chipset with “3D Scaling,” a technology that provides dynamic support for additional subscribers, services, and bandwidth.

Juniper also unveiled new JUNOS-based cloud-networking and security products, including enhancements to Juniper’s SRX Services Gateway as well as modules, implementation guides, and best practices for building a “Cloud Ready Data Center.”

You can see what Juniper is attempting to do.

As much as its server-vendor partners, especially IBM, would like networking hardware to be interchangeable, standards-based commodities managed by an intelligent layer of data-center orchestration software, Juniper is seeking to make itself indispensable by providing its own layer of software intelligence riding atop the network fabric. If it can sell IBM and Dell on the necessity and value of that software, and it can develop and expose interfaces to complementary software its partners are promoting, all should be well and no nasty divorces will ensue.

To survive and perhaps to prosper, Juniper has to execute on its plan and maintain its partnerships.

Now let’s consider Brocade. Reports indicated that HP considered Brocade as an alternative to 3Com. Obviously, HP chose the latter, and I think the decision turned on the lower cost of goods and margin flexibility that 3Com’s enterprise-switching products offered relative to Brocade’s Foundry enterprise-networking gear.

There have been rumors that Dell might buy Brocade, but I think you can discount, if not dismiss, such speculation. Dell is content, for now, to stay with its partnering approach in filling out its data-center strategy. It seems to be mimicking IBM, following a similar plan and establishing similar technology alliances and partnerships. Dell has priorities other than big-ticket computer-networking acquisitions, and I can see it buying storage- and virtualization-software companies well before it gives consideration to a networking buy.

So, despite its best efforts to flog itself, Brocade appears orphaned.

The same story applies to Extreme Networks, which is left without a bigger corporate home to move into. Like Juniper, Extreme seems to have had a good indication where the industry — and perhaps HP — was heading, because it recently restructured and retrenched to significantly reduce its operating expenditures.

Extreme will suffer from the broader consolidation in the industry. Its first priority is to defend its installed base from competitive incursions.

What about WAN-optimization vendor Riverbed and application-delivery-networking (ADN) leader F5 Networks?

F5 probably isn’t for sale — it has been dogged by takeover rumors for years — but neither 3Com nor HP competes meaningfully on F5′s specialized turf. This deal means nothing to F5, which probably will maintain its long-running partnership with HP. If you liked F5 before this deal was announced, you have no reason to dislike the company today.

The story is similar, though not identical, for Riverbed, whose WAN-optimization products also have no direct competitor in the ProCurve or 3Com product portfolio.

So, there you have it.

HP’s acquisition of 3Com is only slightly damaging to Juniper, whose fate will turn on the success of its strategic direction with JUNOS and its partnerships with IBM and Dell.

For different reasons, the deal will have significant negative implications for Brocade and Extreme Networks. Finally, the deal is neutral for, and really doesn’t affect, F5 and Riverbed.

Some of you might be wondering about how this deal affects Cisco. I don’t think it really adds anything lethal to HP’s product portfolio, especially in relation to data-center convergence, but the lower-cost networking products likely to flow from 3Com’s Chinese engineering operations will put price pressure on Cisco’s margins.

At the end of the day, though, Cisco — which is pursuing a large number of “market adjacencies” and is suffering from attenuated focus in its legacy markets — might well become its own worst enemy over the long haul.

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5 responses to “Implications of HP’s 3Com Buy for Other Networking Players

  1. Very informative post. Also I’d like to add, that 3COM was more appropriate acquisition target for HP compared to Extreme and Brocade/Foundry because 3Com is not limited to Switching products only, they have security products (TippingPoint), and some not-very-good IP Telephony, Wireless, and Network Management products. Yet HP still needs to look for a Storage vendor to complete it’s portfolio.

    • Thanks for the comment, Tarek.

      I agree that TippingPoint, at one time, had very good Intrusion Prevention System (IPS) technology. In the years since 3Com’s acquisition of the company, however, I have heard that the quality of TippingPoint’s products has deteriorated. Others seem to confirm that view (http://news.techworld.com/security/3201436/tippingpoint-ips-struggles-in-new-security-tests/). What’s more, there has been considerable turnover in TippingPoint’s management and technical teams during the past few years.

      You are right about HP needing to do more to fill out its data-center portfolio.

  2. I would like to comment where you say that “Juniper overriding message is that it presents a flexible, intelligent, and open alternative to the closed, proprietary systems offered by data-center behemoths Cisco and HP.”

    While I agree with that about Cisco, Please could you tell me how HP has proprietary systems? HP ProCurve core message for many years has been one of a Lower Total cost of Ownership, and Industry Standards.

    I did do a quick search on the additional open-ness of Juniper, which really only points out that “JUNOS is being opened up with an SDK being offered to third party developers” …..

    I would like to point out an informative overview of what was announced yesterday over at the Cisco Subnet blog at Network World http://www.networkworld.com/community/node/47733 – an early paragraph paraphrased David Donatelli and said,

    “We looked around the entire industry at all the possibilities of what we combined in the networking space, and we are really, really excited with what we saw with 3Com.

    First, they have what we consider to be best-in-class products. They are based on open industry standards, and they offer a ton of innovative technology. It broadens our entire capabilities. One of the biggest questions we’ve had from customers has been, hey, we like your Edge products, but we need you to be able to play across our entire networking infrastructure. And this acquisition enables us to do this, adding core switching, routing and security products to us.”

    For full disclosure, I do work for HP.

  3. Really love your insight, thanks.
    One more question here,
    HP seems got a whole line of storage product here.
    http://h18006.www1.hp.com/storage/networking/index.html
    Would you talk more about what product HP lack for data center portfolio?
    Thanks!

  4. The jewel of the trade is the TippingPoint IPS, which is a sore spot for Mcafee considering their relationship with HP.

    TippingPoint has always focused on real world attacks vs test tool edge cases. In the last several months they have added those as well I’ve heard.

    Will HP make Mcafee and TippingPoint play nicer together as they compete in the same space? time will tell.

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