Hewlett-Packard Ratchets Up Cisco Rivalry

In a move likely to turn up the heat on Cisco, the world's largest computer maker said it will buy 3Com for $2.7 billion in cash

In a move that's likely to ratchet up pressure on Cisco Systems in the market for computer-networking gear, Hewlett-Packard said it will buy 3Com for $2.7 billion.

HP (HPQ) said on Nov. 11 it will pay $7.90 a share, a 39% premium over 3Com's closing share price before the deal was announced.

Buying 3Com (COMS) pushes HP further onto turf dominated by Cisco (CSCO), the world's largest maker of routers and switches and other equipment that knits together corporate networks and transfers information across the Internet. The acquisition also helps HP bulk up in China, where 3Com has vied with Cisco in part through lower prices. "Companies are looking for ways to break free from the business limitations imposed by a networking paradigm that has been dominated by a single vendor," Dave Donatelli, who runs the HP division focused on servers and networking for businesses, said in a statement, in a thinly veiled reference to Cisco.

The acquisition comes amid a turnaround that's transformed 3Com from an industry laggard to a viable competitor to Cisco in key markets and products in recent years. "3Com is a growing company," Current Analysis analyst Steven Schuchart said in a recent interview, before the deal was announced. "They're killing it in China. For the first time in a decade, they're looking good."

At the same time it announced the purchase, HP also released preliminary fiscal fourth-quarter results, saying net income rose to 99¢ a share from 84¢ a year earlier, while sales dropped 8% to $30.8 billion. HP also reported profit, excluding certain one-time items, of $1.14 a share. That beat the $1.11-a-share average estimate of analysts surveyed by Bloomberg News.

HP also raised its forecast for full fiscal 2010 revenue to $118 billion to $119 billion, from $117 billion to $118 billion previously. The company also raised its forecast for 2010 per-share earnings to $3.65 to $3.75, from $3.60 to $3.70.

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