IBD article. HP Uses Its Muscle, Clout To Storm Network Arena [No ASND reference. HP coming after COMS.]
Date: 7/30/98
Author: Michele Hostetler
Printer and PC heavyweight
Hewlett-Packard Co. is muscling into the
networking gear market by knocking down
prices.
The Palo Alto, Calif.-based computer giant
made its boldest move in networking thus far
on July 20 when it slashed prices 30% to
$99 per connection on a new line of
equipment known as 1 0/100 Ethernet
switches. A connection is a device that
connects a single computer into a network.
''We've broken the $100 barrier,'' said Gary
McAnally, general manager of HP's
workgroup networks division. ''We have
many more aggressive moves planned and
targeted right behind it.''
Just three years ago, HP wasn't even in the
network switching game. Now it's trying to
move swiftly to gain share. The scenario is
reminiscent of HP's quick strike into personal
computers earlier this decade, when the
company made a sharp move and now
stands third among PC makers.
HP has aimed its networking push at
switches, which speed up networks by
adding an extra lane for data to travel on. HP
plans to release a steady stream of switching
products this year, McAnally says.
It's a good time for HP to stake a claim,
analysts say. The networking industry is in
the middle of a shake-up, and the players are
changing. It's no longer just Cisco Systems
Inc., 3Com Corp. and Bay Networks Inc.
''It's clearly a time of rapid change and rapid
evolution in the marketplace,'' McAnally
said. ''That evolution is really where we've
been focusing.''
HP has set its sights on 3Com's domain of
high-volume products. 3Com was the leader
in Ethernet switches last year, according to
The Dell'Oro Group Inc., a Portola Valley,
Calif.-based market researcher. 3Com had
21.8% of the $1.9 billion market, while HP
had a 3.3% share.
3Com can fend off HP, says Doug Spreng,
senior vice president for 3Com's network
connection products.
''HP is a good company,'' said Spreng, who
worked at HP for 23 years. ''But they're not
a networking company.''
While HP's savvy in the PC and printer
markets could translate well into networking,
it's no guarantee for success, analysts say.
The company warned investors on July 21
that lagging sales in the U.S., Europe and
Asia will pinch third-quarter profits.
And HP isn't alone in its networking pursuit.
Compaq Computer Corp. and Intel Corp.
also are stepping up their networking plays
this year.
Telecom titans Lucent Technology Inc. and
Northern Telecom Ltd. want a piece of the
data-networking market. Nortel is buying
Bay in a stock deal worth roughly $7 billion.
Lucent has been on a buying spree of data-
networking companies.
HP is well behind 3Com, Cisco and Bay. HP
didn't enter the Ethernet switch market in '95,
when most of the players were making their
moves.
''We're coming into the 1 0/100 switch
market a little late, so we have some ground
to catch up,'' McAnally said. ''We want to
double and triple our current position.''
If anything, the HP name will be its biggest
asset in the catch-up game, says John
Armstrong, analyst at San Jose, Calif.-based
Dataquest Inc.
''They have excellent cachet,'' Armstrong
said. ''I think all of these networking
companies have to sit up and pay attention to
what's going on with HP.''
HP's price advantage on the 1 0/100
Ethernet switch could give it a leg up.
Switching prices for its competitors are
hovering around $140 per connection,
although they have plummeted from $1,000
since '95.
HP will continue to drive down prices,
McAnally says.
''As you look going out over the rest of this
year and next, you'll see significant reductions
continuing,'' McAnally said. ''It is moving into
a price war. That's one of the reasons why
we're excited here. We've lived through that
with PCs and printers. We believe that HP
understands how to play in this space.''
Although several analysts say the price
decreases are a natural part of the maturing
industry and not a price war, the cuts could
help HP. ''If a start-up comes up with this
price point, customers will wonder if they'll
still be in business,'' said David Dines, analyst
with Boston-based market researcher
Aberdeen Group Inc. ''But with HP, they sit
up and say, 'We should check it out.' ''
That may not be enough, because customers
still might want to opt for a traditional
networking gear maker, Dines adds.
''The fact that you have low price and high
performance doesn't guarantee success,'' he
said. ''The challenge is getting mind share that
they are a networking company. They've
been in the networking business, but they
haven't been considered a top-tier player.''
Competitors should watch for dropping
prices, says Tom Nolle, analyst with New
Jersey- based Cimi Consulting. The
movement could commoditize low-end
equipment and thereby hurt those with direct
sales forces, such as Cisco, Bay and
Cabletron Systems Inc.
A switch that sold for $8,000 a few years
ago and now sells for $800 doesn't spark
much interest from commission-reliant
salespeople, Nolle says. Commodity
products rely on brand names and retail
stores, areas where HP is strong.
''We're moving into a commoditized market,
but we're not there yet,'' Nolle said. ''It will
take a year or more. The question is: Is HP
willing to stick it out for that period?''
Selling networking gear through retail stores
hasn't been a blockbuster so far for 3Com
and Intel, says Tam Dell'Oro, president of
The Dell'Oro Group. But HP's networking
success may depend upon it.
''HP may be able to crack that nut,'' she said.
''If they can, they will be successful moving
gear down to small businesses probably
faster then their competitors.''
Dataquest's Armstrong agrees.
''They're definitely a dark horse in the
networking field,'' he said. ''HP doesn't have
a technology challenge. It's a marketing
challenge.''
(C) Copyright 1998 Investors Business
Daily, Inc.
Metadata: HWP CSCO COMS BAY CPQ INTC LU
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