VARs Warn HP Not To Ignore 'Hidden Gems' in 3Com Portfolio

Most solution providers agree that HP's pending acquisition of 3Com will put pressure on rival Cisco and further shake things up in the already quaking networking and data center environment.

But just how much pressure is another matter, and one that according to VARs will depend on how HP leverages what it's buying -- and how the channel gets to benefit from that leverage.

Interviews with solution providers for Cisco, HP, 3Com and other competitors have yielded some pretty big questions indeed. VARs agree, however, that if HP can leverage 3com's portfolio to its advantage, overcome years of 3Com channel strife and stay focused on boxing out other competitive threats, it will go head to head with Cisco like never before.

1. What Does HP Gain From 3Com -- And What Will It Keep?

At the outset, the $2.7 billion proposed acquisition would give HP access to 3Com's H3C core and edge switches -- an immediate bolstering of the lower-end HP ProCurve portfolio -- and also TippingPoint, 3Com's highly regarded network security brand.

Buying 3Com also instantly extends HP's reach into some of the most explosive growth markets in the world, namely China, and while there are portfolio integration concerns, most VARs and analysts agreed that HP and 3Com wouldn't have too many cultural differences impeding that integration. Furthermore, HP and 3com are both strong in key verticals like education and state and local government -- combined, they're a powerhouse.

But beyond the H3C cores, TippingPoint intrusion prevention and potential overlap concerns with HP's existing portfolio, there are two other areas where HP also stands to compete: 3Com's voice/IP products and the low-end switches and routers it provides through OfficeConnect.

Both areas give it new fronts against Cisco and other telephony and networking gear players, VARs acknowledged.

"They [HP] had nothing in voice and now they're going to have something. Whether they treat it with respect or let it dangle like 3Com has for a while is the question," said Glenn Conley, president and CEO of Metropark Communications, a St. Louis, Mo. solution provider. "HP is definitely not a telephone company, and for that matter, it took 3com a long time to step up to the plate and say yeah, we are a voice company from when it acquired NBX 10 years ago."

"We've been a 3Com reseller since they bought NBX, and since we're also an HP reseller, we're absolutely excited about what can happen," said Mark Essayian, president of KME Systems, a Lake Forest, Calif. solution provider. "3Com's voice stuff is fully virtualized and runs on off-the-shelf servers. HP is huge into virtualization. Why on earth would they possibly throw that out? I mean, if they really wanted a big voice player, maybe they should have looked at Nortel or Mitel or something, but 3com's underlying architecture for full virtualization is outstanding. That they've divorced the call processing software from the hardware is genius."

Another solution provider who requested anonymity said that 3com's voice portfolio was "perhaps the most underrated in networking."

"It's an unpolished jewel. Not a diamond, but a jewel, yeah," said the solution provider. "Their [3com's] marketing has always kind of sucked. That's why you never hear about it. This is a jewel for HP if you look at it the right way. There's a lot more in that 3com portfolio than a lot of its critics will give it credit for."

Added Essayian: "I'll bet M&A experts from HP took a good long look at that and said hmmm, they don't even know what they have here, do they?"

Less mentioned are 3Com's low-end products through OfficeConnect. But should HP decide to keep OfficeConnect, the line gives HP direct competition with Cisco's Linksys brand for small businesses.

"That stuff works pretty well," said Essayian. "It remains to be seen whether HP wants to compete, but if they keep it, they're up against Linksys and D-Link and a few others. HP isn't dumb, so they're definitely giving it some thought."

2. How Will HP Overcome 3Com's Channel Strife?

3com has spent much of the year trying to convince U.S. solution providers and customers that it could overcome a rocky 2008 and also reclaim the enterprise presence it once dominated and then lost back in 2000, when it discontinued its CoreBuilder switch line.

3com's makeover started in May 2009 when the company brought its H3C line from China to other parts of the world. Since then, 3com has also focused heavily throughout the year has been reworking its channel strategy, and in August said it would integrate its H3C products and TippingPoint security tools to create a new network security fabric.

The memory of 2008 -- which saw the exit of 3com channel chief Nick Tidd and the bust of 3com's planned merger with investment firm Bain Capital partners -- is still writ large in the eyes of many solution providers, however. And HP will need to integrate 3com seamlessly and quickly if it doesn't want that taint to follow 3com into HP's channel-centric technology empire.

"It's still tainted," Conley said. "If HP's trying to expand this presence, well, maybe it's looking for diversification in other parts of the world. In North America it's just still not a good story. 3com has dragged their tail and slowed things down here in North America with their focus clearly elsewhere. We've saw virtually no new product releases here for the longest time, and then all of a sudden they poke their heads out of the sand and said we're coming back. It makes you sad sometimes, actually. 3com back in the 70s and 80s was an R&D engineering feat. It was gorgeous. What's HP going to do with that now that those memories are so old?"

"That CoreBuilder story is so old now, but IT directors still remember it. They all remember it," Essayian suggested. "Some people got burned hard on it. HP's challenge is how to take what they have and scale it."

Next: The Competitive Response

For the moment, said VARs, 3com is saying the right things, and not pretending the acquisition won't affect its channel business.

"The 3com guys are giving us a lot of assurance, which is generally what you'd expect for now," said Don Gulling, president of Verteks Consulting, an Ocala, Fla. solution provider. "We kind of went through this a little with the Bain thing, but that was equity buying 3com. For us, we love HP and we still love 3com, so the combination is going to be altogether better. I have a lot of clients who love HP and only want HP. HP can get the awareness out of their less known lines, like the voice stuff. If they merge those channels with [HP's] own great street relationships, you'll see a net positive effect."

HP's marketing strength can only help 3com, some solution providers argued, especially given its struggles to market itself.

"Maybe you can get a seat at more tables with 3com gear now," Gulling suggested. "And maybe HP will now get a seat at more tables that served only Cisco before."

3. How Will The Competition Respond?

With some exceptions, it's been Cisco that's been pushing the aggressive rhetoric in the ramped up battle with HP. Thanks to Cisco's Unified Computing System (UCS), Cisco's also been advancing on much of HP's data center territory all year.

The 3com buy shifts that aggression back to HP, said solution providers. Whether an HP-3com networking portfolio will truly throw a scare into Cisco President and CEO John Chambers, however, depends on how HP positions its new gear.

"Cisco kicks everyone's rear end by being the marketing master. That's how it's usually gone in networking," said Essayian. "But now Cisco has a heavyweight contender in the ring with them. And it's someone that has as hard a right punch as they do."

"It might give them a little indigestion," Conley said. "But if HP plays its cards right and really develops a good strong voice solution and other competitive solutions -- if they strategize it right -- that indigestion could turn into an H1N1 flu for Cisco. At the very least, there'll be indigestion. A little gas and burping."

Cisco itself has been measured about its competitive response. When responding to a request for comment from Channelweb.com, a Cisco spokesman sent along the same statement Cisco posted to a company blog Wednesday:

"While Cisco has a healthy respect for all of our competitors, acquisitions in our industry only validate the fact that networking is becoming the platform for all forms of communications and IT. As the leader in the networking market, Cisco is very confident in our business strategy, commitment to product innovation and ability to provide strategic business value to our customers in a highly competitive marketplace."

Other competitors have been more pointed in their assessments, while acknowledging what an HP-owned 3com portfolio implies for the market.

"HP's bid to acquire 3COM means it gains SMB-grade switching, IP telephony and security products," said Paul Hooper, chief marketing officer for Extreme Networks, in a statement e-mailed to Channelweb.com. "However, this appears to introduce large amounts of overlap in the two companies solutions and channels. As with the ProCurve products, 3COM has been challenged to scale into larger enterprises and data centers. Assuming the acquisition completes, Extreme Networks remains confident in the benefits of our differentiated solutions. Our single Operating System, ExtremeXOS, scales from the network edge, through the core and into the data center. This delivers the stability, simplicity, and reliability essential for the market."

Next: What It Means For Juniper -- And a Price War

Some VARs were a little surprised HP chose 3com at all with so many other potential targets.

"I'm a little surprised HP didn't buy someone like Juniper," said one solution provider, who asked not to be identified. "Don't get me wrong, I see how 3com makes sense and I definitely see the appeal of TippingPoint, but Juniper is ripe. So, for that matter, is a ShoreTel, which HP could scale up, maybe, to get it more awareness."

Juniper came up frequently in Channelweb.com interviews Wednesday and Thursday. While Juniper recently declared it would be focusing more on research and development than potential M&A, a number of solution providers continue to question that strategy, saying it hurts Juniper's ability to compete with HP and Cisco.

"Juniper has every feature you could possibly pack into a product, and performance to boot," said Gulling. "Maybe they acquire or buy somebody like a D-Link or an Extreme [Networks]. There's really no one else left. Ethernet swtiching and routing is getting commoditized -- you're seeing fewer choices and better scaling. There's no better mousetrap in switches, which is why the HP-3com thing makes even more sense. It's about scale. Cisco is at a disavantage there because their stuff is hugely expensive."

Juniper did not respond to request for comment in time for publication.

Still more observers believe HP's growth through 3com and otherwise are also enough to concern other industry titans like IBM, and also HP's strategic alliance with networking partners like Alcatel-Lucent.

"The alliance calls for HP and Alcatel-Lucent to address mid- and large-sized enterprises and public sector organizations with joint solutions that are based on Alcatel-Lucent's IP telephony, unified communications, mobility, security and contact centers offerings and integrated with HP's IT solutions. The plan is to offer these joint solutions to enterprises through HP resellers or as managed services," wrote John Byrne, a director at Technology Business Research, in a Thursday research note. "Adding 3Com's products to the joint solutions will strengthen them, but may also preclude Alcatel-Lucent's data networking product line from further downsizing to meet enterprise needs as part of the combined offer."

Regardless of the outside competition, say VARs, a price war between Cisco and HP is, in the words of one solution provider, "pretty much inevitable."

"Cisco's been acquiring like mad, but I don't know if it's been buying the right people," said one provider. "But HP can totally blow it by not seeing the potential in 3Com's stuff, blending in a few things, and calling it a day. If they start undercutting each other on everything we [VARs] sell, the channel is going to suffer. If we have to chose sides, the channel is going to suffer."

"It comes down to good channel companies," added Essayian, who with KME System sells HP, 3com and Cisco. "If I'm put in that position where I have to choose, I go with HP and 3com. HP has great people supporting me. 3com has great people supporting me. Cisco has good people supporting me. Great over good."