HP-3Com deal raises stakes in tech M&A battle

By Ritsuko Ando - Analysis

NEW YORK (Reuters) - Major technology companies seem to be launching multibillion-dollar acquisitions every other week, and those who don't join the race may be at risk of getting run over.

Hewlett-Packard Co (HPQ.N) challenged Cisco Systems Inc (CSCO.O) this week by announcing a $3 billion deal for network equipment maker 3Com (COMS.O). It came after Cisco stepped up its dealmaking and expanded into the server market to compete with HP, IBM (IBM.N) and Dell Inc (DELL.O).

"I think this is the start," said Ronald Gruia, analyst at Frost & Sullivan. "Once you have one acquisition, you can have a cascading effect."

The motivation behind this wave of dealmaking by the tech majors is to broaden product portfolios and provide for all of customers' IT needs -- from computing, security, storage and networking to online videoconferencing.

HP's 3Com deal comes after a string of M&A news including Dell's deal for Perot Systems Corp, Xerox Corp's deal for Affiliated Computer Services Inc (ACS.N) and Oracle Corp's (ORCL.O) deal for Sun Microsystems (JAVA.O).

IBM, which bid for but failed to win Sun, has been comparatively quiet on the dealmaking front, doing some smaller deals to expand its services business and signing sales partnerships but nothing viewed by Wall Street as a game changer.

Pressure is mounting on technology companies to diversify to satisfy shareholders' demands for more dramatic sales growth as the economy recovers, analysts said.

"There are three big enterprise infrastructure vendors today: IBM, HP, and now Cisco. And they're all competing against one another," said Broadpoint AmTech's Brian Marshall.