3Com

Who started this food fight? Cisco or HP?

BusinessWeek asked a question a few days ago that I asked last June. Is Cisco stretching itself too thin? I can’t pretend to be expert enough to answer that question, but chasing 30 new technology markets at once is quite ambitious. Making multiple multi-billion dollar acquisitions of Tandberg and Starent to solidify its position in some of those markets is even more ambitious.

Cisco’s leap into the server market seems to have some investors rattled. The profit margins on servers are so much lower than on some of Cisco’s core markets (switches and routers). As BusinessWeek quoted one investor who questioned Cisco CEO John Chambers at Cisco’s annual meeting earlier this month: “At what size does Cisco become so big and diverse that its growth and profitability will plateau?” Chambers’ answer: hopefully after he retires.

Analysts and investors are wringing their hands over whether Cisco can remain nimble as it expands into new markets and burns its longstanding partnerships with server vendors like HP, Dell and IBM. BusinessWeek points out that HP’s aggressive expansion into the networking market is in part a response to Cisco’s moves in the server market. However, among the comments on the BusinessWeek story, someone named “CS” disagreed that Cisco fired the first shot. “HP has been (unsuccessfully) targeting Cisco’s core market for years with ProCurve. Was Chambers expected to sit idle while one of his largest partners openly attempts to undermine him?”

I’m not quite convinced that ProCurve has been targeting Cisco’s “core” market for years. ProCurve greatest success has been in selling edge switches to the midsized enterprise market. Does that sound like Cisco’s core market? Prior to acquiring 3Com, did ProCurve have any core routers on the market? Did it have any switches that could creditably compete against the Catalyst 6500 or any of the new Nexus switches?

So who started this food fight? Once the fight has begun, does it really matter? No. It only matters who wins or loses.  Arguing over whether it was Chambers or HP CEO Mark Hurd who tossed the first plate seems like idle gossip.

Right now the winner looks to be enterprise customers. As Cisco expands and innovates, data center buyers have a new high-end server vendor to consider. And as HP integrates 3Com and H3C into its existing ProCurve division, enterprises networking buyers will find they have a truly viable alternative to Cisco to consider. Choice is always a good thing. And increased competition between vendors doesn’t hurt, either.

HP’s 3Com acquisition

For $2.7 billion, Hewlett-Packard (HP) agreed to acquire 3Com Corporation — an IT networking vendor most noted for its routers, switches and security products. The announcement came at a public press conference held at 5:00 p.m. EST, November 11. HP expects to close on the deal in the first half of 2010.

Although HP missed buying Brocade, acquiring 3Com proves more compatible and powerful. For one, both vendors share a similar vision: interoperability and compatibility. In the HP to acquire 3Com conference call, HP’s 3Com acquisition was considered an accelerator to its “converged infrastructure strategy.” On the other side, the very name of 3Com (computers, communication and compatibility) echoes HP’s voice on converged infrastructure strategy.

Both vendors’ strengths also reside in Asian markets. HP’s 3Com acquisition will mean domination in China’s IT market share, a highly-valued strategic asset. (See HP-3Com acquisition hits Cisco the one place it hurts.) The shared market is seen as an upside, said Dave Donatelli, EVP and general manager of enterprise servers and networking. This is due to contrasting accounts which will further increase its position in China.

While the companies share a great deal (including offices in Marlborough and Silicon Valley), what differs is the game changer. 3Com’s portfolio has populated HP’s non-existent core networking infrastructure technology. These technologies will bring strength to its data center switching solutions.

“[3Com] broadens our entire capabilities. One of the biggest questions[/concerns] we’ve had from customers has been ‘We like your edge product, but we need you to be able to play across our entire networking infrastructure,’ and this acquisition enables us to do this — adding core switching, routing and security products to us,” said Donatelli.

In addition to 3Com’s core and edge routing, 3Com will offer its threat management, intrusion prevention and data center security solutions in what was HP’s weaker product portfolio.

With differing solutions being added to HP’s portfolio, there is hope that few layoffs will occur. However, comments across several websites (such as Twilight in the Valley of the Nerds’ HP’s 3Com acquisition post, Engadget’s HP to acquire 3Com in $2.7 billion deal story and The Metro West Daily News’ Marlborough’s 3Com to be sold $2.7B article) express fear of an addition to the rising U.S. unemployment rate.

3Com displaces Cisco at Quinnipiac University

3Com announced yesterday its first major customer win in North America since it launched its H3C brand globally last month. Quinnipiac University is deploying H3C switches from the core to the edge to serve its three-campus network and the school’s 8,000 students, faculty and staff. The deployment includes several H3C S9500 core switches and more than 100 H3C S5500G edge switches. The school will also use H3C’s new network management software Intelligent Management Center and 3Com’s TippingPoint Intrusion Prevention System.

The H3C gear will replace the school’s incumbent Cisco network, according to 3Com.  In a press release from 3Com, Quinnipiac’s associate vice president for information services, Fred Tarca, said he wanted to keep costs down without compromising network performance, reliability and security.

This is a pretty good customer win for 3Com, which is making yet another attempt to break back into the enterprise market, this time via its H3C brand. H3C was a joint venture with Huawei, but 3Com bought out Huawei’s share in the company a couple years ago. H3C has a broad portfolio of enterprise networking products which has enjoyed great success in China. 3Com recently relaunched H3C as 3Com’s official global enterprise networking brand and is trying to keep head-to-head with Cisco and other market leaders.

Shocker! Cisco leads the pack in Gartner’s Magic Quadrant for enterprise LAN

When I saw that Gartner had published a new Magic Quadrant for enterprise local area network (LAN) infrastructure, I knew one thing was for certain. Cisco Systems would be THE leader in the market. The only question was for me was - how would the rest of the market shake out?

In this blog post I’ll review this year’s Magic Quadrant for the LAN market, and I’ll compare it to last year’s Magic Quadrant for Campus LAN infrastructure, which is essentially a measure of the same market.

As I wrote above, Cisco is THE leader in the LAN market, scoring high in both of Gartner’s criteria for the quadrant: completeness of vision and ability to execute.  In their assessment of Cisco’’s position, analysts Mark Fabbi and Tim Zimmerrman noted that Cisco maintains the broadest portfolio of LAN switching and WLAN technology on the market. The introduction of its Nexus switches have shown that Cisco is providing some leadership in addressing emerging connectivity demands in data centers.

However, Gartner cautioned that Cisco remains the high-priced vendor, with some workgroup switching products being twice as much as alternative products on the market. Gartner also said Cisco might be taking its customers for granted, especially those customers who believe in buying networking gear from more than one vendor. The analysts wrote:

We are hearing increasing concerns about Cisco’s presales organization taking customers for granted, and not providing expected levels of service, especially for customers that have not endorsed an end-to-end Cisco solution.

The only other leader in this Magic Quadrant is HP ProCurve, which was a leader last year as well.  Gartner described ProCurve as the fasted growing LAN switch vendor during the past two years and when clients speak with Gartner about their shortlists for vendors, ProCurve is the the second-most-asked-about vendor after Cisco. Gartner praised ProCurve’s integration into HP’s Technology Services group, which gives it access to HP’s broader sales force. It also praised ProCurve’s low cost of ownership and the successful integration of the WLAN technology it acquired with Colubris Networks.

But Gartner cautioned that ProCurve still lacks high-end core switches (An acquisition of a high end core switching vendor like Arista Networks or Blade Network Technologies would do the trick!). The company also needs to expand its channel for larger sales opportunities. ProCurve has in the past been known as a good vendor for SMBs.

A third leader from last year’s campus LAN Magic Quadrant fell down a notch in this year’s quadrant. Foundry Networks, now known as Brocade, the storage networking company that bought Foundry last year, was classified as a visionary in this year’s Quadrant, scoring high on its completeness of vision but scoring a little lower than last year in its ability to execute.

Gartner praised Brocade’s integration of Foundry but said Foundry lost momentum last year due to its U.S.-centric and data-center-centric sales focus. Gartner said it wants to see market evidence that Brocade’s integration of Foundry is successful and that Brocade can regain market momentum.  I have no doubt that last week’s announcement of a new Ethernet switching OEM agreement between IBM and Brocade will go a long way toward helping Brocade regain some of that lost momentum that Gartner is looking for.

Gartner identified three other visionaries in this year’s Quadrant: 3Com, Enterasys/Siemens and Extreme Networks.

Last year Gartner classified 3Com as a niche player, but it elevated the vendor to a visionary in this year’s Quadrant, giving it higher marks for its completeness of vision. Gartner praised 3Com’s revamped product lines and its growing market share in China and other emerging markets. H3C, 3Com’s Chinese subsidiary, has a 35% market share in China, for instance. And 3Com has a very large, low-cost R&D workforce in China. 3Com recently told me H3C has 2,300 engineers in China.  But Gartner cautioned that 3Com and H3C have been, until recently, run as two separate companies. It will be important for the two to integrate. Also, 3Com has very little market penetration outside of Asia. Gartner warned that taking products developed for China and selling them globally will be a challenge.

Enterasys, which merged with Siemens Enterprise Communications last year as part of a Gores Group acquisition, maintained last year’s position as a visionary. It drew praise from Gartner for it full complement of products from the data center to the access layer, its tightly integrated security technology, and good customer buzz around support and services. But Gartner said Enterasys’s market footprint remains small and its distribution channel is limited. Marketing has also been weak, Gartner said, as the market waits for the new combined company Enterasys/Siemens to change its name.

Extreme Networks, the third visionary in the Quadrant, drew praise for broadening its XOS-based switch line and its policy-based configuration and open architecture. But Gartner noted that Extreme is struggling to maintain revenue and it remains one of the smallest vendors in the market. Gartner also cited some support issues affecting the company’s install base.

Gartner identified two niche players in this year’s Magic Quadrant. First there is Nortel, which was downgraded from its visionary status in last year’s Quadrant. Gartner cited Nortel’s bankruptcy as an impediment to the company competing for new business. Gartner is predicting significant loss of market share and revenue for the company as it remains in bankruptcy. Gartner also said Nortel needs a new core switching platform.

The second visionary, Alcatel-Lucent, drew praise for a solid product strategy and its growing market share and revenue; however, Gartner said the company needs to invest more in R&D to keep pace with the latest innovations in data center switching and wireless LAN technology.

Force10 Networks, which was identified as a niche player last year, was dropped altogether from this year’s Magic Quadrant because it no longer meets Gartner’s revenue requirements for inclusion, whch is 1% of ports sold overall or 5% of ports sold in a specific market segment.

Gartner also noted that Juniper Networks has entered the Ethernet switch market, but it hasn’t earned enough of a revenue share to be included in this year’s Magic Quadrant. Juniper’s switches earned the company $56 million in 2008.

So there you have it, for what it’s worth. Cisco remains on top, but the other players in the market continue to make moves. ProCurve and 3Com are on the rise. Nortel and Force10 are in decline. Everyone else is looking to take a step forward.