Bain, a private equity firm, and Huawei will combine to purchase 3Com in a move that seems to have outlasted many of the analysts who covered the firms. Huawei and 3Com had long been in a partnership that the former hoped would give it an entre into the high-end US network equipment market, but there was more difficulty in getting the new venture moving than had been expected. We think that the acquisition is financially strong and that the combined company may finally make 3Com into the threat to Cisco that everyone involved had wanted it to be from the first. Cisco’s greatest vulnerability in networking is not competition in a market share sense, but rather competition in a margin erosion sense. However, it seems likely this deal has been underway for some time, visible to Cisco for some time, and is likely linked to Cisco’s recent push into software and collaboration, which could help the company shore up margins and defeat price-competitive players.
Wall Street Journal Online