Major technology companies seem to be launching multibillion-dollar acquisitions every other week, and those who don't join the race may be at risk of getting run over.

Hewlett-Packard Co challenged Cisco Systems Inc this week by announcing a $3 billion deal for network equipment maker 3Com. It came after Cisco stepped up its dealmaking and expanded into the server market to compete with HP, IBM and Dell Inc.

I think this is the start, said Ronald Gruia, analyst at Frost & Sullivan. Once you have one acquisition, you can have a cascading effect.

The motivation behind this wave of dealmaking by the tech majors is to broaden product portfolios and provide for all of customers' IT needs -- from computing, security, storage and networking to online videoconferencing.

HP's 3Com deal comes after a string of M&A news including Dell's deal for Perot Systems Corp, Xerox Corp's deal for Affiliated Computer Services Inc and Oracle Corp's deal for Sun Microsystems.

IBM, which bid for but failed to win Sun, has been comparatively quiet on the dealmaking front, doing some smaller deals to expand its services business and signing sales partnerships but nothing viewed by Wall Street as a game changer.

Pressure is mounting on technology companies to diversify to satisfy shareholders' demands for more dramatic sales growth as the economy recovers, analysts said.

There are three big enterprise infrastructure vendors today: IBM, HP, and now Cisco. And they're all competing against one another, said Broadpoint AmTech's Brian Marshall.

Smaller, niche technology firms, on the other hand, are increasingly open to buyouts as a way of securing a solid sales channel. A smaller company bought by a large vendor like Cisco or IBM could turn into a serious competitor overnight.

M&A deals are also a response to customers looking for simpler and cost-efficient ways to run data centers, which are struggling to cope with increasing data traffic.

All of us are under pressure in the IT environment to allow businesses to do more with less, VMware Chief Executive Paul Maritz told Reuters in an interview. People are trying to say, rather than selling everything piece by piece on an a la carte basis, requiring customers to be their own master chefs, we're going to sell more prepackaged meals here.


Companies like Riverbed Technology Inc and F5 Networks Inc, which specialize in supporting faster and more secure online applications, are widely seen as possible acquisition targets.

F5 shares have risen 75 percent in the last six months, though Riverbed is up only 18 percent. Both companies trade at around 25 times forecast 2010 earnings.

And while HP's offer for 3Com made it look like Brocade Communications Systems Inc may have missed out, some analysts said the switching and storage networking company is still an attractive target.

I think Brocade is still definitely in play, Gruia said, adding that IBM could be a buyer. Brocade shares have fallen more than 12 percent since HP announced the 3Com deal.

Most analysts, however, said IBM is likely more interested in expanding in software and services than hardware. It has bought business analytics company SPSS Inc for $1.2 billion.

They're really going to focus on software because that's where the value and the real margin structure in growth is, said Marshall.

Analysts say HP and Dell could also do more deals, and many see network equipment maker Juniper Networks Inc eyeing M&A to compete against Cisco.

Other acquisition targets include wireless technology firms as well as companies specializing in online video, analysts said. They are particularly focused on Polycom, whose bigger rival Tandberg is being courted by Cisco. The Tandberg deal is not yet final as some shareholders are seeking a higher price.


Polycom CEO Robert Hagerty said that rather than find a buyer, it was trying to boost sales partnerships with vendors like HP and IBM. That is similar to the strategy at Brocade, which has forged more deals with IBM and non-Cisco vendors.

Analysts said depending solely on such partnerships may leave many companies vulnerable. Resale partnerships can be cast aside when one party enters an M&A deal with another.

For example, video network infrastructure company Radvision is a close partner of Cisco, but analysts say some of its sales are at risk if the Tandberg deal goes through.

But some also note that acquisitions themselves are high-risk endeavors. Cisco chief John Chambers has said that around 90 percent of acquisitions fail, in general.

As we all understand, the vast majority of acquisitions fail, and truly meaningful strategic alliances have an even poorer success rate, Chambers told analysts recently.

The cross-Atlantic merger of Alcatel-Lucent, which posted its 12th straight loss in the third quarter, is widely cited as a failure.

(Editing by Tiffany Wu and Steve Orlofsky)