With the recent acquisition of 3Com under its belt, HP is positioning itself as an alternative to Cisco Systems and expects it to be a two horse race. Given the acquisition, how does HP stack up against Cisco? While the question is simple, the answer is not. In aggregate, the combined HP-3Com company is positioned favorably against the networking giant Cisco. In Monday's industry analyst call, Dave Donatelli, Executive Vice President, Enterprise, said HP would win in the industry for five reasons: 1. HP has superior technology that empowers business innovation. 2. HP has an architecture built on open standards so clients can leverage best in class solutions and market driven innovation, while adopting an evolutionary approach to a simpler, more flexible network environment. 3. HP has an end-to-end product portfolio - from the network edge to the core of the data center - under a single pane of glass management that significantly lowers operational costs. 4. HP has networking as part of the Converged Infrastructure to deliver a complete strategy and portfolio for building the data center of the future today. 5. HP offers our customers lower total cost of ownership (TCO). In a later slide, HP claimed 30-65% TCO savings depending on the category. Lopez Research Take: The 3Com acquisition bolsters HP’s portfolio and market presence in core data center switching, routing and Ethernet switching. The acquisition gives them access to Tipping Point, which offers network-based intrusion prevention and network access control.  However, the answer to the question of whether HP will become a serious competitor with Cisco varies depending on the specific product categories, customer types (SMB, enterprise, service provider), and geographies. A deeper look reveals the following strengths, weaknesses, opportunities and threats as HP attempts to wrestle market leadership away from Cisco. Strengths The combination of HP ProCurve, 3Com, Tipping Point and H3C is:

• A leader in servers and storage space with fast growth in WLAN. The storage and server market continue to grow and HP continues to place in the top several market share positions, depending on market category. 3Com’s switching portfolio gives HP more opportunity for growth in the data center space.
• A leader in services. HP is the second largest service provider and the services business provides valuable insights into pain points and trends in IT as well as the opportunity to sell more HP product.
• Financially strong. Year-over-year HP grew revenue by 8%, adding more than $2 billion to the top-line in Q1/FY10. Like Cisco, its last quarter showed it is regaining momentum at the expense of other players and it raised its revenue guidance from $118 billion to $121 billion.

Weaknesses It should go without saying that Cisco’s entrenched position in VoIP, WLAN, switching and routing market makes it difficult to displace. Two other areas of concern are:

• Overlap in the portfolio. HP ProCurve already has networking products and will need to spend time rationalizing the portfolio.
• Product gaps in voice and collaboration. 3Com owns VOIP technology but its unlikely that HP will use it. HP stated that the 3Com line could service small businesses while its Microsoft partnership will be the primary enterprise voice solution. While it looks good on paper, these partnerships are difficult to execute. Once HP has 3Com under wraps, it may consider purchasing a VOIP provider such as Avaya that would position it as a strong number 2 in the space.

Opportunities HP believes the merger addresses a $40 billion opportunity. As enterprises look to technology to help them get more accomplished with fewer resources, HP has several areas it can capitalize on, including:

• A new engineering team. The 4,700 H3C engineers have the ability to deliver on HP’s promise of rapid market innovation.
• The expansion of H3C sales beyond China. HP will rebrand the H3C products outside of China as HP products. It will use its brand and channel to drive H3C products into new markets like Brazil and the U.S.
• A willing partner channel. HP currently has 40,000 networking partners and many are interested in a strong alternative to Cisco. If HP can offer its current partners as well as Cisco resellers a more lucrative value proposition, the company can turn the tides in terms of future sales.
• A security cash generation machine. Security is big business. Tipping Points security revenues for the past 9 months reached $106.3 million, a 14.9 percent increase over last year and its margins are in a healthy 76-78% range.  HP can use these products for growth and to offset lower margin businesses.

Threats The industry can use a strong contender to Cisco, but HP isn’t without challenges. HP could:

• Become a negotiation lever in Cisco deals. Rather than rip and replace an entire Cisco network, companies may use HP as a foil to decrease the high premiums they have been paying to Cisco.
• Lose share to Huawei as it shifts from partner to competitor in China. As H3C has become 3Com and Huawei sales of H3C products continue to decline. Huawei sales decreased $43.5 million in the last quarter and have decreased $126.8 million in the past nine months. That’s a big number for a company with $956 million in sales.
• Rapidly lose a substantial portion of its Chinese revenue. China currently accounts for 53% of 3Com's revenue, which has decreased $56.3 million, or 10.0 percent in the prior nine months that ended February. This trend will likely continue as H3C become viewed as a foreign entity. H3C also gets revenue from Chinese VAT subsidy payments that are subject to end in December 2010.

What should HP do next?

• HP should reinvigorate its mobile position beyond tablets. There are over 4.5 billion mobile handsets today and the market is expanding rapidly beyond cell phones and laptops. Both Cisco and HP are weak in this area. HP should consider working with a company such as Google to build a better smartphone. HP should also work with industries like healthcare, education and utilities to build next generation connected devices such as blood glucose monitors, video-enabled teaching appliances and smart monitoring devices.
• HP should refine its video strategy. Cisco claims the collaboration market is a $34B market and that video will be a large part of this market. HP has products that span from the desktop to immersive room systems but Cisco is dominating the conversation here. HP must show the same level of commitment to video as it does to networking or sell off the product line. HP could thrive in the space if it can develop an immersive technology that was cheaper. Given HP’s consumer brand strength, it should build a consumer strategy for video that bests Cisco’s personal telepresence.

• HP should take ownership of the voice and collaboration space. The verdict is still out on whether the HP-Microsoft partnership will deliver results. However, Cisco is out there every day talking collaboration, unified communications and voice. HP needs to show rapid results from the partnership or acquire in the space.

Maribel Lopez is the Founder and CEO of Lopez Research (www.lopezresearch.com). she has more than 18 years of  professional experience focusing on the telecommunications and networking industry. ,