December 13, 2004 10:51 AM PST

3Com beefs up security with $430 million buy

3Com announced on Monday that it will acquire security company TippingPoint Technologies for $430 million.

TippingPoint makes an intrusion prevention appliance called UnityOne that sits on networks and quickly inspects incoming packets to determine whether they are malicious.

The TippingPoint product also generates reports on prevented attacks so that data can be aggregated and analyzed. Earlier this month, the company announced a partnership with Symantec that will enable the TippingPoint reports to be integrated with Symantec's security management software.

Under the terms of the agreement, 3Com will pay $47 per outstanding share of TippingPoint stock, which represents a 13 percent premium over the closing price Friday. The total purchase price will be about $430 million. The deal is expected to close before March.

Once the acquisition is closed, TippingPoint will operate as a division of 3Com, with TippingPoint CEO Kip McClanahan assuming the role of division president. Austin, Texas-based TippingPoint has about 125 employees. The companies offered no word about whether there would be layoffs associated with the acquisition.

"TippingPoint's products, solutions and employees are all world-class," 3Com CEO Bruce Claflin said in a statement. "We will provide them access to 3Com's global resources and infrastructure to expand their ability to deliver best-of-breed security products. The integration of TippingPoint into 3Com enhances our ability to deliver secure, converged networks to the enterprise market."

Enterprising strategy
3Com has been trying to get back into the enterprise market for some time. New security products could make it more attractive to enterprise customers, since many customers now expect more security from their networking vendors. 3Com has already started integrating security features into its switches.

Cisco Systems, 3Com's main competitor and the leader in Internet Protocol networking, has already invested heavily in security. It also sells an intrusion detection and prevention product, and over the past year, it has added new security features to its switches and routers.

At this stage in 3Com's development, it's clear that the company needs new value-added products and features to keep up with competitors. Last week, the company pre-announced weaker-than-expected results for the November quarter. These results are now expected to be in the range of $149 million to $153 million, compared to prior guidance of $170 million to $180 million. 3Com reported revenue of $162.3 million in August.

Analysts say part of 3Com's problem is that it still relies on selling low-margin, stackable Ethernet switches. This, coupled with a recent staff turnover, has hurt the company, according to a research note published last week by Lehman Bros. analyst Tim Luke.

"We believe the weakness partially resulted from the continuing commoditization of Layer 2 stackable switches," he said in his note. "We [also] believe recent departures of several senior sales executives, including the head of Americas sales and the head of worldwide sales, may be causing some near-term disruption in the company's sales execution and other operational matters."

In September, 3Com fired its top sales executive, Nick Ganio, following a sluggish financial performance over several quarters. Claflin has assumed Ganio's duties. 3Com also lost Neal Oristano, its vice president of North American operations, in July.

 

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