HP’s King-Size Networking Ambitions

With the 3Com acquisition done, HP clearly believes it is in a two-horse race against Cisco in enterprise networking. I don’t know whether HP is looking past the other players in the space, but it is definitely concentrating its animosity on Cisco.

That antagonism would seem to be at fever pitch. Sources familiar with company’s thinking say that HP is planning to attack Cisco aggressively on price-performance right across the product landscape. Although HP probably wouldn’t own up to it publicly, sources say the company’s objective is to batter Cisco relentlessly on price, systematically eating into both Cisco’s margins and its market share. HP believes Cisco is particularly vulnerable on profit margins and its SMARTnet revenue.

The thinking at HP is that Cisco will be reluctant to take a severe margin beating and will lose market share steadily. How much?Apparently, HP thinks it can take enough market share to damage Ciscos irreparably, to the extent that Cisco’s market capitalization would decline significantly. In HP’s dream scenario, Cisco would lose so much market share, and incur such a hit to its market capitalization, that the networking giant would become an acquisition target.

HP can dream, apparently, and it’s dreaming big. Toward that seemingly vainglorious end, HP has instructed its account managers and to do what is necessary to beat and displace Cisco in the field.

So, is HP — metaphorically, anyway — smoking crack? Does it believe it will not only compete effectively against Cisco, but push Cisco right off the networking stage? Even if HP believes it, how practical is the goal?

One skeptic would be John McHugh, currently chief marketing officer at Brocade but a former top executive at HP ProCurve. In an interview with Shamus McGillicuddy at TechTarget’s SearchNetworking, McHugh offered the following thoughts on HP’s approach to the market:

My roots are in HP. They kind of continued with their purchase of 3Com. That’s a very pedestrian, value-oriented business model, and I think they’re getting more value-oriented. It’s about debunking the differentiated value of a lot of the vision pitching and the hype in this industry. There is a large segment of the customers that just want something that works and is cost-effective. You’ve got to be careful about it. This is the most strategic purchase customers make: the network, end to end. We’re messing with the data center which is the heart of the circulatory system. But if you talk about the artery going to the brain, if you cut that off, you’re dead.

The reason IBM and HP and a lot of the big system IT solution providers failed in networking was that they don’t get that basic concept. The [campus] network is the most strategic purchase customers will make. And if you’re not a networking company, I don’t think you will ever believe that. I think you’ll always treat it like, “It’s all confusing, and companies like Cisco made it more important than it actually is. If we just deliver it really cheap and really efficient, then they will buy from us.” And that’s failed. Everybody who’s tried that has totally failed in that market.

If McHugh is right, HP will have overlooked history, misread the market, and failed to fully appreciate what enterprise customers expect from a leading networking vendor. HP also will have underestimated Cisco as a market leader and competitor. As McHugh can attest, it wouldn’t be the first time that happened.

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