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Wednesday, November 11, 2009

H-P buys 3Com -- so what?

Much is being made of the of the news that Hewlett-Packard (HPQ) has made a bid to acquire 3Com (COMS). This move is being characterized as a challenge to Cisco Systems (CSCO).

So how much of a challenge to Cisco is this?

A comparison of revenue is revealing.

The following table comes from H-P's 10-Q from September 2009 and shows the most recent quarter:

 
 
2009
 
2008
 
% Decrease
 
 
 
In millions
 
Net revenue
 
$
193
 
$
271
 
 
(28.8
)%
(Loss) earnings from operations
 
$
(10
)
$
26
 
 
(138.5
)%
(Loss) earnings from operations as a % of net revenue
 
 
(5.2
)%
 
9.6
%
 


The table shows the revenue and earnings from the Corporate Investments segment whose revenues are derived primarily from sales of networking infrastructure products sold under the ProCurve Networking brand.

The point of this is that, in a good year, the networking segment brings in revenue of maybe a billion dollars per year.

For the last few years, 3Com revenue has been somewhat flat in the neighborhood of $1.3 billion.

So for H-P, the 3Com acquisition is certainly a step forward.

But how does this compare to Cisco?

In its most recent quarter, Cisco had about $8.5 billion in revenue.In poking through their 10-Q the company didn't break out revenue by segment, only by geographical region. Taking a totally wild guess, let's say that Cisco's networking segment is responsible for half of total revenues or roughly $4.25 billion. That is probably conservative but implies annual revenue for the segment of $17 billion.

So at best, the new H-P networking group is only one eighth the size of Cisco's networking group. H-P will certainly provide competition but a challenge? Not so much.

Disclosure: no positions

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