Partners: HP's $3 Billion Acquisition Of Aruba Networks Will Put Pressure On Cisco

Solution providers Monday said Hewlett-Packard's $3 billion acquisition of wireless networking high-flyer Aruba Networks will put the heat on networking leader Cisco Systems.

"This deal to me shows the vulnerability of Cisco and the fiefdom Cisco had in networking," said Bob Venero, CEO of Future Tech, a Holbrook, N.Y.-based HP and Aruba partner. "HP is going after Cisco for a bigger piece of that market." Another top executive for a national HP enterprise partner, who did not want to be identified, said the deal opens up a new innovative, best-in-class wireless offering to go head to head against Cisco.

"It's a shot across the bow of Cisco," said the executive. "Aruba has a state-of-the-art product that is already taking market share from Cisco. This should accelerate that. When you put the power of the HP partner network behind this, you are going to see some serious wireless networking share gains for HP."

[RELATED: Despite Strong Q2 Earnings, Aruba Partners Jittery About Possible HP Acquisition]

Aruba, which posted sales of $724 million in its most recent fiscal year, is on track to quickly break the $1 billion sales market, said the solution provider executive. "With HP's scale, I see Aruba moving quickly to $2 billion in sales," he said.

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HP said it expects the acquisition to be accretive to earnings in the first full year following the close of the deal. HP said it expects the sale to be finalized in the second half of its fiscal year, which runs from May 1 to Oct. 31.

Aruba, which has 1,800 employees, grew sales 21 percent in the last fiscal year.

HP revealed the definitive agreement to acquire Aruba Monday morning. HP said it is paying $24.67 per share in an all-cash transaction. The all-cash transaction totals $3 billion, but net of cash and debt it amounts to $2.7 billion.

HP said it will leverage the strong Aruba brand to deliver next-generation converged campus networks. The new combined campus networking unit will be led by Aruba CEO Dominic Orr and Aruba Chief Strategy and Technology Officer Keerti Melkote. Orr and Melkote will report to HP Enterprise Group Chief Antonio Neri,

HP and Aruba said the new converged campus network business will accelerate sales growth for HP in the $18 billion market.

’Together with HP, we have a tremendous opportunity to become an even greater force in enterprise mobility and networking,’ said Orr in a prepared statement. ’This transaction brings together Aruba’s best-of-breed mobility hardware and software solutions with HP’s leading switching portfolio. In addition, Aruba’s channel partners will have the opportunity to expand their businesses with HP offerings."

HP CEO Meg Whitman said in a prepared statement that the deal paves the way for customers to transition legacy investments to a new style IT "mobile first" world. "By combining Aruba’s world-class wireless mobility solutions with HP’s leading switching portfolio, HP will offer the simplest, most secure networking solutions to help enterprises easily deploy next-generation mobile networks," said Whitman.

The deal comes after HP posted an 11 percent drop in networking sales in the most recent quarter. Cisco, meanwhile, reported 11 percent sales growth in the most recent quarter in its switching business fueled by strong sales of its Nexus 9000 and Nexus 3000 switches.

Whitman told CRN in an interview last week that HP has realigned sales incentives in response to the networking fall-off. What's more, Whitman said, she is confident that HP "will take share back again from Cisco."

Future Tech's Venero, for his part, sees Cisco particularly vulnerable because of what he called the high annual maintenance fees associated with Cisco's SmartNet support offering "That is an accounts payable nightmare for companies who have to continually pay Cisco for support and maintenance," said Venero. "I am not saying maintenance is a bad thing, but the level Cisco is charging compared to other organizations is much higher than what other companies charge."

PUBLISHED MARCH 2, 2015