First of all, yes of course $HPQ is going after $CSCO (who isn’t these days?) – but as usually happens when the leader gets attacked, I expect the damage, at least in the near-term, to be minimal. Market leaders, once established, are very, very hard to unseat. Not impossible – but if it happens it will transpire over the course of years, not quarters.
Expect More Volatility for Network Equipment Companies
The larger impact will be on the second-tier players, since a big deal like this makes a large acquirer less likely to acquire other players – at least where there is product/market overlap. At the same time, the presence of a strong #2 makes buyers even less likely to do business with ‘everyone else’.
On the positive side, it puts the entire sector in play – particularly if $HPQ decides to double-down.
In other words, the effect of the $HPQ/$COMS deal will be minimal on $CSCO, but could mean a lot to $BRCD, $JNPR, $FFIV, $NTGR, $ADTN, $EXTR and others. Whether that effect is positive or negative remains to be seen – but I’d expect more volatility – a lot more.
$JNPR appears particularly at risk, having recently staked much of their strategy on their being the alternative to $CSCO.
HP shifting focus from software to networking?
One might also speculate that $HPQ – once a major partner of $ORCL – might be shifting their focus somewhat away from the server & infrastructure software markets that the soon-to-be-combined(?) $ORCL/$JAVA and $IBM more likely dominate.
Has $HPQ decided to throw in the towel on IT and software and focus more attention on networking? Or is this a broader diversification with an eye toward becoming a one-stop-shop for IT and networking? Their next deal should give us a much better sense of where they are headed.
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