Hewlett-Packard said on Wednesday that it had reached an agreement to acquire 3Com, a provider of computer network equipment, for $2.7 billion in a deal that H.P. plans as a springboard for an assault on the market leader in networking, Cisco Systems.
Hewlett-Packard's headquarters in Palo Alto, Calif. The company said its acquisition of 3Com will help improve its business in China.
In an interview, Ann M. Livermore, an executive vice president of H.P., described computer networking as a $40 billion-a-year market with high profit margins that is growing briskly and dominated by Cisco, which has so far had little head-to-head competition.
“H.P. is eager and now positioned to disrupt the networking industry,” Ms. Livermore said.
The offer price, $7.90 a share, is at a premium of about 39 percent to 3Com’s closing price on Wednesday. The deal was announced after the market closed.
Under Mark V. Hurd, its chief executive, Hewlett-Packard has been beefing up its network equipment offerings to compete more aggressively against Cisco to sell data center equipment to corporations.
But so far, H.P. has mostly supplied smaller equipment used in office networks, both wired and wireless.
“What we’ve been missing is networking for the core of the data center,” Ms. Livermore said. “That’s where Cisco is strong, and before, H.P. couldn’t attack that.”
This year, Cisco went after one of H.P.’s core businesses by entering the market for server computers used in data centers. Cisco also recently teamed with EMC, another technology giant, to sell data center equipment to businesses.
H.P. also provided investors with an early look at its earnings for its fiscal fourth quarter, which ended in October, and raised its estimates for the next year. The company reported a profit, excluding some items, of $1.14 a share in the fourth quarter, which slightly beat expectations of a $1.12 a share, as compiled by Thomson Reuters.
Revenue in the quarter was $30.8 billion, down 8 percent from a year ago. But the company’s sales performance beat analysts’ forecasts by $1 billion.
H.P. joins a series of technology companies that have reported better-than-expected results recently, including Intel and I.B.M.
“Solid execution drove exceptional performance for H.P. this quarter, fueled by significant growth in China,” Mr. Hurd said in a statement.
H.P. also raised its forecast for its 2010 fiscal year. The company said it expected revenue for fiscal 2010 to be $118 billion to $119 billion, up somewhat from its previous estimate of $117 billion to $118 billion. It forecast earnings per share, excluding some items, to be $4.25 to $4.35, up from the earlier forecast of $4.20 to $4.30.
In 3Com, H.P. is acquiring a company with a rich heritage in network technology and a solid product portfolio, analysts say. But it lacks Cisco’s size and credibility in the data center market, where large corporate customers look for strong suppliers who can provide a full range of products and services.
H.P. may well be able to fill those gaps, with its strong services, storage and server computer businesses. “3Com, with H.P.’s backing, is capable of making a real run at Cisco,” said Rob Enderle, an independent technology analyst.
But analysts said that while 3Com would give H.P. crucial technology to broaden its reach in networking, further product development and marketing investment would be needed to compete directly with Cisco in large data-center accounts. “It will be a two-year process to roll this out,” said Jeffrey Evenson, an analyst at Bernstein Research. “This is a longer-term play.”
While trailing well behind Cisco in most markets, 3Com is strong in China. Half of its $1.3 billion in sales comes from the Chinese market. Three hundred of the largest 500 companies in China, and 70 percent of government agencies, use 3Com equipment, Ms. Livermore said.
Last year, a deal to sell 3Com for $2.2 billion to an alliance of Bain Capital, a private equity firm, and Huawei Technologies, a Chinese maker of networking equipment, fell apart after a federal review panel, the Committee on Foreign Investment in the United States, expressed national security concerns about the transaction.
3Com shares were up more than 30 percent, at $7.67, in after-hours trading on Wednesday. H.P. shares were down slightly. Trading in 3Com call options — contracts to buy 3Com shares at a fixed price — surged Wednesday to their highest level since September 2007, suggesting that word of the deal may have leaked before the announcement.
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