Nemertes Impact Analysis:

In making a deal to acquire 3COM (NASDAQ:COMS), HP (NYSE:HPQ) shores up its networking lines and continues the return of "one-stop shopping" IT. HP's move clearly aims at Cisco (NASDAQ:CSCO) following its push into enterprise computing, and further differentiates it from IBM (NYSE:IBM) and Oracle (NASDAQ:ORCL). HP is already the number 2 LAN vendor; adding 3COM customers and technologies, especially Tipping Point to build up its security line, will only accelerate its expansion in the space. Nemertes finds IT's always eager to reduce vendor pool size, balanced by a steady refusal to let pre-existing relationships determine product/provider choices (which ranked 9th of 10 criteria for choosing a service provider).

Impacts:

Enterprises: HP becomes more viable as a comprehensive network vendor; evaluate during any network vendor selection.

Vendors: Monitoring and other tools vendors (CMDB, security, etc) should make sure they treat HP the way they treat Cisco.

Investors: Oracle and EMC may decide to go all the way and buy into networking as well. Extreme (NASDAQ:EXTR) and privately held Enterasys are obvious candidates. HP may also decide to continue the acquisition spree by moving in to unified communications, to continue the head-to-head with Cisco. Privately held Mitel and Avaya, as well as Shoretel (NASDAQ:SHOR), would all be possibilities.

By John E. Burke, Principal Research Analyst

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