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November 13, 2009

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HP targets Cisco with purchase of 3Com

HEWLETT-PACKARD Co's US$2.7 billion takeover of 3Com Corp is a shot at networking leader Cisco Systems Inc, and a sign of how old relationships are being frayed by a flurry of maneuvers by technology heavyweights.

HP said on Wednesday it has agreed to pay US$7.90 per share for 3Com, a 39 percent premium to 3Com's closing stock price before the deal was announced. 3Com makes things like routers and switches that direct Internet and other data traffic.

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.

The 3Com acquisition represents the latest attempt by HP, the world's No. 1 maker of personal computers, to expand into more profitable areas than PCs. HP's PC division made up nearly a third of the company's total revenue in the last nine months, but only 17 percent of its operating income.

One of the areas HP is eyeing is computer networking, a market dominated by Cisco.

"Every customer I speak to has asked us to do more networking," said David Donatelli, executive vice president of HP's enterprise servers and networking group.

HP has been trying to muscle into Cisco's turf with its ProCurve line of networking gear, which has been growing but is still a very small part of HP's business.

Adding 3Com beefs up HP's networking offerings and gives it a bigger presence in China. More than half of 3Com's US$1.3 billion in annual revenue is derived from China.



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