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.

With V-Block, clients can build “private clouds” from which to draw computing resources. It’s an ambitious effort designed to capture a bigger piece of the IT infrastructure market by offering large unified systems designed to handle most of a business’s computing needs. As Cisco CEO John Chambers noted earlier today, the goal here is to more effectively target the market for cloud infrastructure and services, a market that could be worth as much as $350 billion.

It’s also a market loaded with with fierce competitors, IBM (IBM) and Hewlett-Packard (HPQ) among them. Not that this worries Chambers much. “Will this change the industry?” he asked during a conference call today. “Time will tell. I believe that it will be the partnership that people will look back on and say it changed the data center and clouds forever.”

Analysts had expected AMD to lose 42 cents a share on revenue of $1.26 billion, according to a consensus survey by Thomson Reuters. Instead, the company lost 18 cents a share on revenue of $1.4 billion, which was down from $1.8 billion for the same quarter last year.

Not the sort of blow-out quarter we saw from Intel (INTC) earlier this week, but encouraging news nonetheless. Certainly, AMD’s leadership believes the company is poised for a turnaround. During a conference call to discuss AMD’s (AMD) third-quarter results, CEO Dirk Meyer offered an upbeat outlook for the remainder of 2009 despite the current loss.

“Third quarter consumer PC demand continued to improve from prior periods, with particular strength in notebooks and in China and continued recovery in Europe and in North America,” Meyer said. “And it appears the commercial IT markets are positioned to improve next year….Going forward, we believe we are well positioned to succeed.”

“You will see us be reasonably active,” he said. “We have a talented team of people that includes people who have been at Dell a long time and understand the Dell culture in the transactions that we’ve done and know why those have succeeded or not. We are rapidly developing that, and we’ve added some talent to help us do that.”

And what sectors is Dell (DELL) most interested in? Health-care information technology, as the Perot acquisition clearly suggests. “When you look at the health-care space, it’s the one sector of the economy that has the least amount of IT, and we see it as very promising for growth,” Dell said. “There’s usually more technology at the grocery store than there is at your doctor’s office.”

The global PC market will suffer a rare decline this year with shipments expected to slip four percent to 287.3 million units in 2009, from 299.2 million in 2008 (click on chart to enlarge). Not since the dot-com bust of 2001 have PC sales been so slow or their outlook so grim, says iSuppli, the research outfit charting the market’s collapse.

“An annual decline in unit shipments is highly unusual in the PC market,” says Matthew Wilkins, principal analyst, for iSuppli. “Even in weak years, PC unit shipments typically rise by single-digit percentages. The last decline–in 2001–was a 5.1 decrease in unit shipments due to the extraordinary impact of the Dot-Com bust, which caused inflated IT spending levels from the previous years to collapse.”

Driving the gloomy forecast this time around: The econalypse, of course, but also, dwindling demand for desktop computers. iSuppli expects an 18.1 percent drop in desktop shipments, from 151.9 million in 2008 to 124.4 million in 2009.

Grim, I know. Still, there is a bit of good news in the report. Notebook PC shipments will rise 11.7 percent to 155.97 million units in in 2009, exceeding desktop shipments for the first time ever.

Welcome news, right? Sadly for Dell (DELL), it was tempered by the revelation that the company’s gross margins will fall short of Wall Street expectations. And investors weren’t too happy to hear about that, sending Dell’s shares down more than three percent in late trading. The announcement comes a day before the company’s scheduled meeting with financial analysts and four days before its annual shareholders gathering.

“If (the Eee PC from) Asus starts to do well, we are all in trouble. That’s just a race to the bottom.”

– Mike Abary, senior vice president of Sony’s IT product division, February, 2008

If the netbook market is a race to the bottom, then Sony is bringing up the rear. Not a year after Sony execs disparaged netbooks as undeserving of its premium brand attention, the company announced its token entry into the market: the Vaio W.

Outfitted with a 10-inch screen, an Intel (INTC) Atom processor, 1GB of memory, a 160GB hard disk drive and Windows XP, the machine prices out at $630 in Japan, $499 in the U.S. That’s quite a bit more expensive than rival netbooks. Which is odd since the market for these machines is fairly price-sensitive. Still, Sony (SNE) feels the W is good value for the money, given its design, cheery color palette (white, brown, pink!) and screen resolution–at 1366 by 768 pixels, the W’s display is clearly better than that of its rivals.

Said Vaio chief Nicolas Barendson, “We believe that this screen resolution and design offers our customers a better experience, and that it will be popular with both newcomers to the netbook market looking for a quality portable PC at a netbook price point, and customers wanting to improve their existing netbook experience to date by upgrading their screens.”

Sony’s announcement leaves Apple (AAPL) as the lone major computer manufacturer without a netbook offering, a designation it’s likely to keep for the foreseeable future, according to company execs. “When I look at netbooks, I see cramped keyboards, terrible software, junky hardware, very small screens,” COO Tim Cook said back in April, noting that it’s “a stretch” to call a netbook a personal computer. “It’s just not a good consumer experience and not something we would put the Mac brand on…it’s not a space as it exists today that we are interested in, nor do we believe that customers in the long term would be interested in. It’s a segment we would choose not to play in.”

That’s the word from Gartner, which back in March was claiming the decline would be just 3.8 percent. The research outfit said Tuesday that it expects tech spending to fall to $3.2 trillion this year, down from $3.4 trillion in 2008. And it sees all four major segments of IT–hardware, software, IT services and telecommunications–suffering revenue declines in 2009 (click on chart below).

“The forecast decline in spending growth for the hardware and software segments in 2009 has almost stabilized, and only minor downward revisions have been made to these forecasts this quarter,” said Gartner’s Richard Gordon. “However, the full impact of the global recession on the IT services and telecommunications sectors is still emerging, and forecast growth in these areas has been further reduced significantly.”

That said, the company sees a rebound of 2.3 percent in 2010.

Gartner (IT) is the latest research firm to temper its projections for information technology spending this year in light of the ever-souring economy. Last week Forrester (FORR) lowered its expectations for 2009, saying the first two quarters of the year were worse than expected and that the decline will carry out for the rest of the year. It did, however, say we can expect a rebound in 2010.

Why the discrepancy? RampRate says Credit Suisse vastly overestimated YouTube’s bandwidth, storage, and data center costs. Worse, it failed to account for Google’s peering agreements, which significantly reduce Internet transit costs by exchanging traffic locally with other large networks. RampRate figures Google (GOOG) pays for about 27 percent of YouTube’s bandwidth. It trades for the remaining 73 percent through peering deals.

Beyond this, Google finds savings in other ways. It’s likely able to negotiate a lower rate for 27 percent of YouTube bandwidth it pays for simply by virtue of the sheer amount of business it’s able to bring to the table. And it keeps hosting costs low by maintaining servers in out-of-the-way locations. Says RampRate, “Regardless of what you may hear, YouTube costs are a fraction of any other company running similar operations. Most of Google’s bandwidth is free or near-free; its hardware is cost-optimized; and its data center costs are mostly committed or sunk.”

If that’s the case, why didn’t Google take issue with Credit Suisse’s (CS) projections? Why does it allow this perception of YouTube as money pit to persist? Well, silence is golden, is it not? “Any appearance of profits leads to more draconian revenue share demands from partners and additional lawsuits from owners of unlicensed content,” Ramprate explains. “An apparent loss deters this behavior, making it eminently advisable for Google to let rumors of YouTube’s losses grow and compound….

“The trail for this strategy was blazed long before YouTube. Apple’s poor-mouthing of iTunes served it exceptionally well for years in holding back the tide of higher revenue share demands (even as labels privately suspected the service was much more profitable than reported). The apparent stability and maturity of the business finally culminated in recent price increases. Google can only hope that its run with YouTube lasts as long as Apple’s luxury of $.99 pricing.”

No area of technology will be immune to the decline. Hardest hit: the computer hardware sector, which is expected to see spending fall 15 percent to $324.3 billion. Seems even the promise of government stimulus packages won’t be enough to offset this ugly near-term outlook. Said Gordon, “Economic conditions have continued to erode business confidence in all regions. There is a continued general sense of uncertainty in the market and a lack of clarity of actual amount of toxic debt out there. IT organizations will look for ways to shift spending from capital expenditures to operational efficiencies.”

Long a partner to the big server makers, the networking equipment giant today became a competitor, announcing an aggressive push into the server market. No longer content to peddle switches and routers alone, Cisco (CSCO) is now selling what it calls a unified computing system–a full-blown data center solution that encompasses everything from servers and storage to connectivity and virtualization services. The move is a brazen challenge to IBM (IBM), HP (HPQ) and other vendor partners with whom Cisco had once cooperated. “We’re going to compete with HP,” Cisco CTO Padmasree Warrior told The Wall Street Journal. “I don’t want to sugarcoat that. There is bound to be change in the landscape of who you compete with and who you partner with.”

Of course, but “change” is rather a tame word for a potentially market-disrupting expansion of Cisco’s business. This is a power grab, plain and simple. A game-changer. Cisco is offering an integrated approach to what’s long been a multivendor arrangement. Whereas before, CIOs would purchase servers from one company, virtualization software from another and networking from yet another, the networking giant is proposing they now purchase them together from a single vendor: Cisco. And that puts it on a collision course with IBM and HP.

“H-P, IBM and Cisco are the new four horsemen of IT infrastructure and they are all fighting to increase their share of the enterprise IT wallet,” Forrester Research analyst James Staten told Marketwatch. “They have all benefited from growth of the market and by taking share from weaker players, but are now needing to go after each other’s strongholds to keep growing. They are definitely leveraging technology evolutions that drive unification, so customers win through this competition, but it’s going to be a bloody fight.”

A difficult question. It’s clear that Microsoft (MSFT) has so far failed to improve Windows Mobile to better compete with the iPhone, and with handsets using Google’s (GOOG) Android, which are slowly beginning to arrive at market. When will it close the gap?

Ballmer’s answer? We’re getting around to it.

“We have a significant release coming this year,” he said. “Not the full release we wanted to have this year but we have a significant release coming this year with Windows Mobile 6.5….We still don’t get some of the things that people want on the highest-end phones. Those will come on Windows Mobile 7 next year. Certainly I’m not, um–there’s opportunities for us to accelerate our execution in this area, and we’ve done a lot of work to really make sure we have a team that’s going to be able to accelerate. With that said, we did sell more Windows Mobile devices last year than Apple did iPhones–just an important factoid to have. Blackberry was a little bit ahead, and Google was nowhere to be seen, except in Silicon Valley, I’m sure. But we’ll do our best to help you with that challenge.”

We’re doing our best? Not the answer the questioner was looking for, I’m sure. And noting that there were more Windows Mobile devices sold last year than Apple (AAPL) iPhones doesn’t make the disparity between the two any less vast. Finally, it’s all well and good that Microsoft is accelerating Windows Mobile development to better meet its competition. But that competition isn’t exactly standing still waiting for Microsoft to bring itself to parity. It lapped Microsoft two years ago, and if the software behemoth continues at its present pace, the competition will lap it again. Perhaps it already has.

Goldman Sachs published its “Americas: 2009 Software Outlook” report today and it’s as dismal and ugly a forecast as you’d expect, given the current economic climate.

“The worst of the IT-spending slowdown likely remains in front of us, as we start the clock on slashed 2009 budgets,” Goldman said in the report. “We forecast 0 percent revenue growth for our group, below consensus at 5 percent, and 1 percent earnings growth, below Street at 2 percent.”

Beyond that, the firm forsees an eight percent decline in developed economy tech capital investment, with the likes of Microsoft (MSFT), Oracle (ORCL), SAP (SAP), Symantec (SYMC), CA (CA)–the so called Big 5–treading water until the economy recovers. Said Goldman, “We expect the Big 5 software companies…to benefit from more defensive revenue streams due to critical nature of functions, ’stickier’ maintenance, stronger negotiating leverage, and a likely spending consolidation to larger vendors. Hence, we assume 0 percent growth for this group in 2009.”

Ugly. Could have been worse, though.