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HP slashes Ethernet hub prices

The move underscores a comprehensive effort by the systems giant to remain competitive in a variety of markets through aggressive pricing.

Hewlett-Packard (HWP) has fired the first price-slashing salvo of the new year in the low-end market for networking equipment, touching off what could be another bruising round of discount warfare, according to analysts.

The systems giant announced price cuts of up to 46 percent today on its line of Ethernet-based hubs, a networking device that allows desktop users to connect to a network and share bandwidth.

The move underscores a comprehensive effort by HP to remain competitive in a variety of markets through aggressive pricing. The company also introduced new PCs today that are priced as low as $800. (See related story)

HP's networking equipment cuts cover both 10-mbps and 100-mbps Ethernet speeds within the company's AdvanceStack line of unmanaged hubs. Ethernet technology is the dominant means to connect PCs and server systems in office environments.

Tam Dell'Oro, founder of market researcher the Dell'Oro Group, said more price cuts from HP's competitors will follow. "[There's] absolutely no question about it," she added.

Price cuts in one area of the networking equipment business often trigger cuts in other segments, as companies try to retain a distinct gap between different pieces of hardware and their respective features. HP executives said that price differential is critical to the future of the market for hubs.

Moreover, the low end of the networking market is heating up as challengers continue to try to pry market share away from leader 3Com in several segments. Processor giant Intel in particular has been interested in this arena, and networking kingpin Cisco Systems has made it known that it will no longer take for granted the fast-growing market for networking equipment within small businesses. Smaller firms such as D-Link Systems also continue to apply pricing pressure in certain low-end markets.

However, hubs are feeling the pinch from more intelligent switching hardware. Prices on the switch side of the networking business have fallen sharply in recent months, making it easier for network administrators to justify a switch over a hub for their networks.

Analysts said many network managers are also choosing to go with faster 100-mbps Ethernet hubs for a bandwidth upgrade and switches for more intelligence. "HP is being aggressive in the markets that are hot," said Dell'Oro.

3Com executives claim HP's moves were in fact a reaction to the current prices of their own OfficeConnect family of products. "To be honest, this is very much a reaction to our market position," said Karen Oddey, vice president of marketing at 3Com. "I wouldn't expect us to react to this."

Intel executives could not immediately be reached for comment. Previously, the firm has taken an strong tack in pricing for its low-end offerings in order to gain a larger presence in the market.

Examples of the HP cuts include a 100-mbps Ethernet hub with eight ports--called the 8TXE--that has been reduced from $799 to $429, a 46 percent reduction. A 10-mbps eight-port hub has been slashed from $179 to $145, a 19 percent discount. The price cuts are effective immediately.

Thierry Gonon, a product line manager at HP, insisted that competitors will have to fall in line to remain competitive in the market. In late September, HP cut prices up to 30 percent on its line of Ethernet-based switches.

The Dell'Oro Group expects per-port prices on shared, unmanaged 10-mbps hubs to fall to $10 over the course of 1998, a striking example of how commoditized the low-end networking business has become.