3Com buyout could drive competition in switch market

Bain Capital to take network kit vendor private in $2.2bn deal

The $2.2bn acquisition of network vendor 3Com by private investment firm Bain Capital could help foster more competition in the switch market, according to experts.

As part of the deal, Chinese network kit vendor Huawei Technology will become a “commercial and strategic” partner of 3Com, acquiring a minority interest in the new firm. However, the exact level of the stake was not specified.

Gartner lead analyst on 3Com Mark Fabbi said that it was the level of the minority stake taken by Huawei that could be the determinant for how successful 3Com would be in trying to establish itself in the enterprise market for network kit. "Something between 10 and 20 per cent would be the ideal level, because it shows a level of commitment and support from Huawei. Anything lower would indicate just a financial interest rather than a stronger commitment," he explained.

Recent figures from research firm Dell'Oro Group give 3Com around nine percent of the Europe, Middle East and Africa switch market. The sector is currently dominated by Cisco, with the number two and number three vendors, HP ProCurve and 3Com, attempting to pry market share away from the networking giant.

Fabbi added that while he did not expect any immediate downward trends in 3Com’s switch pricing as a result of the acquisition, IT buyers could look to negotiate better deals on a case-by-case basis. “The price of 3Com switches has already trended down the price curve. Basically all of its current portfolio already has R&D and manufacturing based in China so I wouldn't expect any significant shifts in pricing - other than that possible for specific deals,” he said.

The transaction is expected to close by the first quarter of 2008, subject to 3Com shareholder and customary regulatory approvals.