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Deal may turn HP into networking leader

Acquisition of EDS ups the ante for HP in the enterprise networking space and puts the company in a much better position.

Hewlett-Packard is often thought of as a conservative Silicon Valley institution, not an industry mover and shaker. Yet for the second time this decade, HP is sticking its neck out with a huge merger. First Compaq, now EDS. Wow!

Lots of industry people will certainly write or blog about corporate synergies and how this deal will affect the overall services industry, but my focus is a bit smaller. I believe this deal really ups the ante for HP in the networking space.

As a solutions provider and government outsourcer, EDS builds a lot of big data centers and enterprise applications that pull a lot of hardware along for the ride. The obvious conclusion is that HP can use its EDS arm to sell more servers but HP's networking group could actually be a bigger winner.

Large public/private sector deals tend to be anchored by Cisco networks. EDS won't change this overnight, but slowly but surely it will introduce HP ProCurve switching equipment into the mix. As ProCurve technology gains enterprise scale and functionality, this transition will become more pronounced; EDS will lead with HP ProCurve as its preferred networking solution. All of a sudden, the ProCurve enterprise vision of flat, intelligent switched networks gets a lot more real. And when chief information officers look at the price difference between Cisco and HP networking equipment, a ProCurve networking solution will surely look a lot more compelling.

This vision may seem a bit far-fetched since Cisco owns 80 percent to 90 percent of the enterprise market depending on whose numbers you believe. The thing is that we are in a period of massive networking changes. Data centers will be anchored by 10Gb Ethernet switches, networks will transition to IPv6, and network intelligence for activities like application acceleration, entitlement management, security, and WAN (wide-area network) optimization is changing the way networks are built and used. CIOs typically are more open-minded regarding big technology shifts, thus opening the door for other networking vendors.

HP along with Juniper and Nortel were already gearing up for this new fight. With EDS in tow, HP is in a much better position today then it was yesterday.

Jon Oltsik is a senior analyst at the Enterprise Strategy Group.