That 3Com (http://www.3com.com/corpinfo/en_US/index.html ) has yielded to what has seemed the inevitable for a long time now, is unsurprising.

There have been plenty of observers who have questioned its market durability. “Cautious in business, but willing to jump headlong into new technologies with little regard for their eventual success, 3Com made many mistakes but got lucky more often than chance would seem to allow". (Bill Ray, CFO publication http://www.cfo.com/article.cfm/10723373?f=related )

That HP bought it is also unsurprising. Who else could? Regulatory issues would rule out firms like Cisco and IBM. Other smaller networking companies would face similar issues even if they could afford the USD 2.7 billion price tag. A non-US firm? Uh-uh, bad history there, man.

HP makes much of the Chinese contribution in this bid but HP has had deep links in China for a long time. There are security assets in the 3Com portfolio but are these that valuable when the security scenery is changing to a much more holistic approach?

The inevitable questions arise about integration of 3Com into HP’s Procurve house. Can it be done? What will it cost? How long will it take?

In all the China talk, no official mention has been made of Huawei’s place that was. With Huawei,( http://ww.huawei.com )3Com set up a 51/49 JV in November 2003 as H3C. (http://www.h3cnetworks.com/) It did well and three years later each partner bid against the other to gain 100% ownership. 3Com won out with a bid that valued H3C at USD 1.8 billion.

Huawei got closer to getting hold of 3Com when it became a junior partner to a bid by launched by private equity firm Bain Capital in late 2007. Assuming Bain Capital expected to bail out of the deal after 3 years or so, Huawei would have been in pole position to buy the lot. In the event the deal was scuppered early last year by the American government in the form of the Committee on Foreign Investment in the U.S. (CFIUS), worried about foreign ownership of 3Com’s other main business, Tipping Point. (http://www.tippingpoint.com/ ) A supplier of intrusion prevention systems, Tipping Point Technologies was bought by 3Com in 2004.

So it seems that H in 3Com’s future will stand for Hewlett and not Huawei. Does this therefore mean there will be competition in China? After all Huawei sources a considerable part of its IP products from H3C. Will it want to continue to do so in view of the fact that its non-compete clause in the H3C sales agreement expired early in 2008? Will the Chinese authorities treat this development benignly? Might they want to play tit-for-tat after the way the US government interfered in the Bain bid?

While we see no overwhelming merit in the HP case we do see it could create serious competitive issues for Cisco. Cisco may have thought it was one step ahead when it announced it was entering the server and unified computing market just six months ago. (http://newsroom.cisco.com/dlls/2009/prod_031609.html )

It looks as though HP may have countered that move – but it may be at too high a price. It’s worth noting that when Bain bid for 3Com about 2 years ago, it put only USD 2.2 billion on the table.