“Sources familiar with the matter” tell Reuters that Brocade has received first-round bids from “a handful” of interested buyers.

Who might those parties be? Now that Dell has acquired Force10 Networks and Hewlett-Packard has snapped up 3Com, the list of possible suitors is a bit shorter than it used to be.

So who’s left? IBM remains a candidate and Oracle is always a possibility, regardless of what its CEO has said in the past. And beyond that? Private-equity firms, most likely.

Brocade shares are trading up more than 6 percent on buyout speculation.

With its shares trading down 39 percent since the end of 2010, there’s clearly still a lot of work to be done. But analysts are taking notice and expressing new confidence. In a note to clients this morning, ISI analyst Brian Marshall says HP is looking better for a variety of reasons — one of them is its little-noticed IT security business.

If you break down HP’s various lines of business, you’ll find, Marshall argues, that its security assets are surprisingly strong. In 2009 and 2010, HP made two key acquisitions in the area of security: It spent $1.5 billion for ArcSight, a security software player; before that, it nabbed the networking concern 3Com for $2.7 billion. A key asset in that deal was TippingPoint, a network intrusion prevention product.

Marshall writes that HP’s security assets bring in about $1.5 billion in sales and are growing at about 30 percent year, with gross profit margins in the neighborhood of 80 percent. This compares favorably with security outfit Check Point, which trades at a multiple of about 10 times sales, Marshall says.

Security is going to matter a lot more to HP’s corporate customers, as they start sweating over intrusions by hackers and nation-states poking holes in the infrastructure and looking for valuable information to steal, he says.

If you conservatively assume that HP’s security assets are worth half as much as Check Point, or only five times sales, and then assume that they report a reasonable $2 billion in revenue in calendar 2012, (nearly 2 percent of HP’s expected total sales), you wind up with a business unit that’s worth about $10 billion, or one-fifth of HP’s market cap. Suddenly, the security push that HP announced in September makes a lot more sense.

Security, Marshall says, is just one leg of a four-legged stool that HP has in its favor. The other three legs are its enterprise storage, networking and server businesses, and the “seat” of the stool which tie them all together are the software and IT services businesses. The one weakness, he concedes, is its software portfolio, which has historically been small and limited, and accounts for about 2 percent of sales despite such big acquisitions as Mercury Interactive and Opsware.

Even so, Marshall sees a 30 percent upside to HP’s valuation, and has pegged it with a $34 price target and Buy rating.

HP has announced to the world that it plans to stop selling its TouchPad tablets and other hardware running the webOS software it got after spending $1.2 billion to acquire Palm last year. Yet it wants to keep the webOS software, guessing, perhaps correctly, that there’s some revenue-generating business to be made of it yet, maybe in patents. Meanwhile, the hardware side of webOS is, after disappointing sales, being shut down, just maybe to be reanimated under the umbrella of the soon-to-be spun out PC business. And it’s building one last run of the heavily discounted TouchPad, to rid itself of parts it has already paid for. It’s complicated!

As it happens, a pair of internal HP memos — which were leaked to PreCentral.net, a site devoted to the Pre, the first smartphone to run webOS — appear to outline how the webOS split is going to go down.

According to the memos, the webOS software business — that is, the bit that HP still wants — is being moved inside HP’s Office of Strategy and Technology, or OS&T, which is headed up by Shane Robison, HP’s executive vice president and chief strategy and technology officer. One of the two memos was written by him.

And what of the webOS hardware group? It will remain within the Personal Systems Group, which is HP’s formal name for the personal computer business it says it wants to spin off as a separate company.

It’s not the first time that the hardware and software halves of what used to be Palm have been split into separate entities. Students of the history of Palm well remember the strange odyssey that began in 2002, when Palm — less than two years after spinning out of its prior parent, 3Com — split into two companies: A hardware company called PalmOne, and a software company called PalmSource.

The idea was that the two halves of the business had different agendas. The software business saw opportunities in licensing the PalmOS to numerous hardware manufacturers. In time, several companies took out licenses: Handspring, launched by Palm’s original founders Jeff Hawkins and Donna Dubinsky, was the original licensee, and others followed. Sony made a bunch of handhelds sold under the Clie brand; IBM sold something called the WorkPad; Garmin made a GPS-enabled PDA that could also help keep you from getting lost. Eventually a company called Access bought it and still operates it to this day.

Meanwhile, the hardware business soldiered on under the name PalmOne. In 2003, it acquired Handspring, bringing back its original founders, and in 2005 it bought back the rights to use the Palm name. Then, in 2007, came the big investment from Elevation Partners, the creation of webOS and, well, you know how that turned out.

Now as head of HP Networking, he has a job that is no less daunting: Wrestling with none other than Cisco Systems, the powerful grandaddy of the networking business. HP’s networking unit, recently bolstered by its $2.7 billion acquisition of 3Com last year, caught some attention this week with an audacious promotion offering networking customers a 20 percent discount on certain products if they trade in old Cisco gear.

To be fair, HP has yet to take much business away from Cisco. As The Wall Street Journal noted, Cisco has so far held on to its 70 percent share of the enterprise Ethernet switching market in Q3, up from 67 percent a year ago, according to the research firm Infonetics. HP’s share was 11 percent, the same share that 3Com had before it was part of HP.

Still, it’s an interesting time to be trading barbs with Cisco, in part because it appears vulnerable given its uncertain market outlook when it reported earnings last month, but also because it’s eyeing some of HP’s home turf for expansion.

I met up with Haas at HP Headquarters in Palo Alto recently to talk about how the matchup with Cisco is shaping up, and what to expect from HP in 2011.

NewEnterprise: Marius, let’s start with the big question about the coming year. You were deeply involved with the EDS deal and several HP deals before that. Is there still an appetite for big deals in IT or at HP?

Marius Haas: “It’s not going to stop. The big are going to get bigger. The appetite for some of the niche technology players to get some funding so they can grow to a sufficient scale is not gone. Now it’s becoming clear that Cisco, Oracle, IBM and HP are all pretty much starting to build out their end-to-end stacks and I don’t see any stop to the deal-making. In order to get the kind of muscle you need to compete in this market you have to be pretty big and you have to be global.”

NE: So HP is not done doing deals?

MH: “No.”

NE: What kind of deals might we see?

MH: “I’ll give you a hint. Look at who our new CEO and Chairman [former SAP CEO Léo Apotheker] is. You can probably draw a conclusion that maybe we’ll continue to expand in the software arena, and then move up the stack. That’s a logical path he could be taking.

NE: Let’s talk about the competition, specifically Cisco–a networking company that’s going after the data center and IT. You run the networking division of an IT company. Talk to me about that dynamic.

MH: “We like the position we’re in. We have all the things you need in order to bring together and deliver a sort of holistic kind of cloud strategy for customers. It takes a lot of IP and we’re the only company on the planet that has it all. Servers, storage, networking, management software, services. And all the devices as well. No one else has that. And Cisco doesn’t have it. They will come from their position of strength which is networking, but they are going to have to partner to deliver the broader ecosystem. It’s easy to put on paper, but harder to deliver.

“They’re used to their network model with proprietary products. Customers are saying they don’t want proprietary stuff. They want something that’s standards-based, interoperable and at a much lower cost. Our offering is resonating. We don’t see the kind of slowness they are seeing. And the enterprise customers are telling us they no longer want a single-vendor-dominated networking market. They want competition for their business.”

NE: So where are you seeing demand?

MH: “Historically HP before we acquired 3Com was strong in the mid-market and in the edge of the enterprise. We were strong in the K-12, local government, hospitality and health care segments. Now we’re seeing broader momentum in the enterprise, especially from companies who are modernizing their environment and getting ready for the cloud. People are getting tired of paying a premium for Cisco. And you’ve got about $9 billion worth of gear from Cisco that is going end of life soon. Out of our top 1,000 enterprise accounts, 458 are doing proof of concept trials with us. People are now convinced we are that second horse in the race.”

This is, after all, the third consecutive time that HP has gone outside to pick a leader, previously hiring Carly Fiorina from Lucent and Mark Hurd from NCR (NCR). And before deciding on Apotheker, the company was known to be considering three CEO-caliber candidates from its own roster–Todd Bradley, executive VP of HP’s personal systems group; Ann Livermore, vice president of HP’s $54 billion Enterprise Business; and Dave Donatelli, executive VP of Enterprise Servers and the guy who helped lead HP’s successful bidding war for 3Par. Donatelli is a relatively new hire and may not have had strong CEO aspirations (yet), but Livermore has been passed over the the top job three times now, and sources at HP say Bradley had been “hopeful” about becoming the company’s next CEO.

Has Apotheker’s appointment made these three execs flight risks?

J.P. Morgan analyst Mark Moskowitz doesn’t think so. “Livermore has been an HP-lifer and credited with integrating the enterprise services and hardware practices,” he wrote in a note to clients today. “We think [she] will want to stick around as the enterprise solutions mantra continues. Meanwhile, Bradley has been instrumental in augmenting the personal systems business, and we think he will be focused on next leveraging the Palm acquisition into a potential disruptive force in mobile communications environments. Lastly, Dave Donatelli is still relatively new to HP, and we expect him to be busy integrating the 3Par and 3Com assets, both deals of which he was the chief architect, based on our conversations with industry contacts.”

Makes sense, right? Livermore is a veteran and her hopes for the CEO spot couldn’t have been too high after being passed over for it twice. Donatelli has been at the company only a little over a year, reports to Livermore and is still making his mark at the company. And Bradley, though surely disappointed, has HP’s developing webOS-based device business in which to take solace. That said, if there is a flight risk among these three, he seems the most likely. Jokingly introduced as the CEO of HP at the TechCrunch Disrupt conference earlier this week, Bradley quipped, “Not yet.” And it seems clear he had his eye on the job. But will losing it to Apotheker inspire him to hop trains? Tough to say. In any event, were he to threaten to leave, HP (HPQ) would surely do all that it could to keep him (maybe it already is). Losing him at this point would be terrible for the company’s consumer business.

The company, which consumers know primarily for its printers, says it is seeking to recast itself as a broader technology concern with a campaign featuring, among others, rapper Dr. Dre and stand-up comedian Rhys Darby, star of the HBO series “Flight of the Conchords.” A person familiar with the matter estimated that the eight-week campaign will cost $40 million.

“Most people think we are just a printer company,” says Michael Mendenhall, H-P’s chief marketing officer.

Over the past few years, however, Chief Executive Mark Hurd has tried to make H-P less dependent on printing by snapping up companies like Electronic Data Systems and network-equipment maker 3Com. Its new businesses have put the company squarely in the cross hairs of rivals like Cisco Systems (CSCO) and International Business Machines (IBM).

Read the rest of this post on the original site

The change, which will take effect April 30, means that H-P will no longer have access to information like Cisco’s product roadmaps, which help partners make long-term plans for how to position Cisco gear. H-P will still be able to sell Cisco products to its customers, but it won’t be eligible for rebates and other incentives.

Cisco’s move is the latest sign of tension between the one-time partners. The networking giant used to count then H-P CEO Carly Fiorina among its board members, and H-P used to encourage its sales force to push Cisco’s networking gear. But last March Cisco unveiled a server system that competes with one of H-P’s core products. In November H-P bought 3Com so that its networking division could better take on Cisco.

Read the rest of this post on the original site

“HP’s solid performance in Services drove record profit, and the accelerated pace in signings creates strong momentum going into 2010,” said CEO Mark Hurd. “Our operational execution and improving cost structure generated strong quarterly and year-end results. We expect to outperform the market due to our significant scale, broad portfolio and market-leading position.”

Looking ahead to its first quarter, HP sees revenue of $29.6 billion to $29.9 billion and diluted earnings per share of 90 cents to 92 cents.

With its strength in Ethernet, 3Com (COMS) gives HP a major piece of the pie, but it still needs a few more slices if it wants to be a one-stop-shop for data centers. One such slice it might go after next is application acceleration, said Catharine Trebnick, a senior research analyst with Avian Securities.

Application acceleration appliances speed up the delivery of programs from a data center to the people using it, using methods such as balancing the workload across machines.

Prior to HP’s announcement yesterday, many analysts speculated publicly traded F5 Networks Inc. (FFIV), a leader in this space, was a likely acquisition target, but most now have soured on that idea.

Read the rest of this post on the original site

The acquisition, which has been approved by both companies’ boards, should bolster HP’s data center strategy and, thanks to 3Com’s routing business, intensify competition with rival Cisco (CSCO), which has lately been expanding into HP’s businesses.

“Companies are looking for ways to break free from the business limitations imposed by a networking paradigm that has been dominated by a single vendor,” Dave Donatelli, executive vice president and general manager, Enterprise Servers and Networking, HP, said in a statement.

“By acquiring 3Com,” Donatelli added, “we are accelerating the execution of our Converged Infrastructure strategy and bringing disruptive change to the networking industry. By combining HP ProCurve offerings with 3Com’s extensive set of solutions, we will enable customers to build a next-generation network infrastructure that supports customer needs from the edge of the network to the heart of the data center.”

Below, the official release:

HP to Acquire 3Com for $2.7 Billion
Will create networking industry powerhouse with a proven, edge-to-data center set of solutions and global reach

PALO ALTO, Calif., and MARLBOROUGH, Mass., Nov. 11, 2009

HP and 3Com Corporation (NASDAQ: COMS) (“3Com”) today announced that they have entered into a definitive agreement under which HP will purchase 3Com, a leading provider of networking switching, routing and security solutions, at a price of $7.90 per share in cash or an enterprise value of approximately $2.7 billion. The terms of the transaction have been approved by the HP and 3Com boards of directors.

This combination will transform the networking industry and underscore HP’s next-generation data center strategy built on the convergence of servers, storage, networking, management, facilities and services. The resulting business outcome will help customers simplify the network, deploy a unique and innovative edge-to-core network fabric for the enterprise and improve IT service delivery capabilities, all delivered with best-in-class price-performance.

“Companies are looking for ways to break free from the business limitations imposed by a networking paradigm that has been dominated by a single vendor,” said Dave Donatelli, executive vice president and general manager, Enterprise Servers and Networking, HP. “By acquiring 3Com, we are accelerating the execution of our Converged Infrastructure strategy and bringing disruptive change to the networking industry. By combining HP ProCurve offerings with 3Com’s extensive set of solutions, we will enable customers to build a next-generation network infrastructure that supports customer needs from the edge of the network to the heart of the data center.”

“Our extensive product line and innovative technology together with HP’s breadth and scale will expand our global opportunity,” said Bob Mao, chief executive officer, 3Com. “3Com’s networking products are based on a modern architecture which has been designed to offer better performance, require less power and eliminate administrative complexity when compared against current network offerings. Our products are enterprise proven and widely deployed in the world’s largest banks, manufacturers, Internet service providers, public utilities and retailers.”

The acquisition of 3Com will dramatically expand HP’s Ethernet switching offerings, add routing solutions and significantly strengthen the company’s position in China–one of the world’s fastest-growing markets–via the H3C offerings. In addition, the combination will add a large and talented research and development team in China that will drive the acceleration of innovations to HP’s networking solutions.

3Com also brings to HP best-of-breed network security capabilities through its TippingPoint portfolio. For the past four years, TippingPoint has been the leader in Gartner’s “Magic Quadrant” in its evaluation of leading network security products. Approximately 30 percent of the Fortune 1000 companies have already deployed TippingPoint intrusion prevention systems.

“We are confident that we can run our entire global business of 300,000-plus employees, including our next-generation data centers, entirely on the new HP networking solutions,” said Randy Mott, executive vice president and chief information officer, HP. “Based on our experience and extensive testing of 3Com’s products, we are planning to undertake a global rollout within HP as soon as possible after the completion of the acquisition.”

Under the terms of the merger agreement, 3Com stockholders will receive $7.90 for each share of 3Com common stock that they hold at the closing of the merger. The acquisition is subject to customary closing conditions, including the receipt of domestic and foreign regulatory approvals and the approval of 3Com’s stockholders. The transaction is expected to close in the first half of calendar 2010.

HP anticipates that the transaction will be slightly dilutive to fiscal 2010 non-GAAP earnings.