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HP's Deal With 3Com Was Behind the Curve

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Too many companies are playing follow the leader.

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It's fascinating how the sell side uniformly aligned to praise the Hewlett-Packard (HPQ) acquisition of 3Com (COMS) last week. Cheerleaders are plentiful but analysis of an underlying problem seems to be lacking.

Whether you believe the 3Com acquisition is good or bad isn't the critical question. From my perspective, if HP wants to overpay to buy access to the Chinese enterprise router market that's its business. The real question HP investors and those of some other companies should be asking is, what took HP's management so long to figure this out?

As we age, we become less nimble and flexible. I can personally attest to the fact that my body doesn't do things like it did when I was 20 (maybe that's a good thing sometimes). We also tend to become more risk-adverse in our decision-making. Those same characteristics occur in companies as well as they increase in size and age. Calcification knows no bounds!

HP has been pumping out computer hardware successfully for many decades. As the industry has evolved, so has the company in extending its reach into various product segments. However, it took HP's management 15 years after IBM's push into "services" to react and make a splash with their acquisition of EDS.

Now, after years of selling hardware to IT managers around the world HP, has discovered that all that hardware is connected to a network via a series of routers and switches. Who'd a thunk it? In another stoke of brilliance, HP has decided to jump into a moribund market with the acquisition of 3Com.

Where were these people earlier in the decade when the growth rate of this business was exploding? Were their eyes shut or were they just blind to what was taking place?

HP isn't alone in exhibiting its lack of vision. Dell (DELL) has demonstrated repeatedly that it's a prime offender as well.
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No positions in stocks mentioned.
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