glimpse into how technology companies work today, and what their strategies are for their continued growth. Hewlett-Packard (H-P) is one of the largest and most well-known high-tech companies in the world. In fact, the article states that it is the world’s largest tech company by its revenues. H-P is acquiring 3 Com, a smaller company that has had problems in the current economic climate, to add another set of tools to its arsenal. A vice president with H-P says, “3Com has a better set of networking products for large corporate clients than H-P currently sells and a market share of more than 30% in the China networking market” (Scheck). Thus, H-P is positioning itself for a larger market share in China, and to better compete with Cisco Systems, another well-known high-tech competitor in the Silicon Valley.
Perhaps the most important aspect of this article is not that H-P is branching out, but that this is a new phenomenon in the high-tech industry. Prior to the recession and lost sales, most high-tech companies remained in their own niche. For example, Cisco specialized in networking, H-P specialized in PCs and printers, and Dell specialized in PCs. Today, all have branched out to embrace other aspects of high-tech. Cisco has reached out to servers, which encroaches on Dell and H-P, and H-P is now encroaching on Cisco with networking tools. Rivalries that were friendly are now more strained, and there are no more clear lines where competition starts and stops. Each of these companies (and more mentioned in the article), are attempting to become “one-stop shops” where customers can find all their technology needs, from computers and servers to software and peripherals, all from one company. They are also gobbling up smaller companies in this attempt, so they are becoming larger and more cumbersome at the same time.
For those of you who don’t know, Hewlett-Packard is the world’s largest high-tech company if you analyze revenue, which might surprise some of you. H-P is acquiring the networking company 3 Com for 2.7 billion dollars, in a move to put it in direct competition with networking giant Cisco Systems. For example, after the acquisition, H-P’s market share in networking units shipped will reach 40% worldwide, while Cisco’s units shipped is 54% worldwide. 3 Com is a major player in China, so H-P will become better known and respected in China as a result of the sale.
While the acquisition is important for H-P and its worldwide operations, it’s important for a number of other reasons. Many high-tech companies are expanding into territories they never explored before due to the rough economic conditions and dropping sales. H-P used to deal exclusively in PCs and printers, and in fact, their largest source of revenue was printer ink cartridges, as short at time ago as 2005. Today, H-P and many other companies are diversifying; trying to become “one-stop shops” where clients can purchase everything they need for their computing needs, from PCs to software and peripherals. This is pretty unheard of in a world where companies maintained friendly rivalries and didn’t step on each other’s turf. For example, Cisco handled networking, and Dell and H-P handled PCs and printers. Now, H-P is moving into networking with its purchase of 3 Com, and Cisco has moved into servers, which used to be Dell and H-P territory. To add to the mix, Oracle, which was once a software giant, bought Sun Microsystems earlier in the year, placing them in the computer market, too. All of these companies were large on their own, and with their expansion, they are turning into mega-companies that smaller companies will have a hard time competing with. Now the rivalries aren’t so friendly, and competition is heating up.
Why all the blurring of high-tech lines? An Oracle executive explains it. He says, “The goal now is to sell ‘complete systems’ made of chips, computers, storage devices and software, said Oracle Chief Executive Larry Ellison earlier this year. He is betting that approach will appeal to corporate customers tired of assembling technology from multiple vendors” (Scheck). Corporate customers may indeed like the new convenience of one-stop shopping, but all this acquisition is changing the face of high-technology companies around the world. As if they weren’t big enough already, acquisitions like these can make them unruly and extremely complicated for the future.
Not all companies are expanding, however. Motorola, which is having trouble competing in a tough market, recently got rid of its networking side of the company, and IBM sold off its PC side to a Chinese company. H-P’s move to acquire a networking company wasn’t a surprise; they have been looking for a company to acquire for a while. They looked at another high-end networking company called Brocade Communication Systems but the deal fell through. 3 Com is known for low-end networking solutions, but much of their market in China is high-end, which seems to balance out their business. H-P was so impressed with their high-end equipment that they replaced their own network with 3 Com technology.
The big story here is not really about the acquisition itself, although it shows H-P is ready to play hardball with Cisco. It is really how so many Silicon Valley companies are finding it necessary to restructure and reinvent themselves as they economy continues to struggle. Once, these giant companies were happy to remain in their own niche, allowing competitors to dominate other areas of the marketplace. Today, they are all trying to do everything at once. What does this mean for the industry? Personally, I see it getting smaller and companies becoming giant monopolies and that is not good for competition or the consumer.
Scheck, Justin. “H-P to Acquire 3 Com for $2.7 Billion.” Wall Street Journal. 2009. 14 Nov. 2009.