(Bloomberg) -- As Hewlett-Packard Co. prepares to break itself in two, the company is embarking on an ambitious plan to boost its share of the $38 billion networking market dominated by Cisco Systems Inc.
The centerpiece of the effort is new software, built on Hewlett-Packard's acquisition of Aruba Networks Inc. This will let customers manage entire networks with a single app, instead of a patchwork of tools. Hewlett-Packard is also revamping its sales staff—merging teams previously focused on different products and dangling incentives to make sure customers are pitched on the full range of the company's technologies.
"There is lots of market share that we can gain," Meg Whitman, chief executive officer of Hewlett-Packard, who will also lead HP Enterprise, which has about $54 billion annual revenue, said in an interview. "We’re a No. 2 player. Big difference between us and No. 1—I think we’ve got a really great portfolio, and we’re heading right to where the market is moving, which is wired and wireless."
The effort began under Whitman's predecessor Mark Hurd, who spent more than $2 billion on networking vendors including 3Com and Colubris Networks. Even so, HP grew sales in networking by less than 10 percent over four years, with Cisco offering a more complete package of products. Cisco still commanded 49.7 percent of the global enterprise networking-equipment market in 2014, while Hewlett-Packard had 8.3 percent and Aruba Networks Inc. 1.7 percent, according to Gartner Inc.
To close the gap, Whitman bought Aruba in May for $2.5 billion. Aruba, which makes wireless equipment for big companies, hotels and universities, will form the backbone of HP Networking, as the business will be called. Dominic Orr, Aruba's former CEO, is leading the effort. Boosting networking sales is crucial for HP Enterprise, which will separate from the more consumer-focused HP Inc. later this year.
Aruba will be "a Trojan horse to ramp up their networking business," said Woo Jin Ho, an Bloomberg Intelligence analyst. "It is a way for them to try and get their campus switching business back on front. We're literally in the first innings of a five-year replacement cycle".
"Everybody is going to upgrade to wireless access because they need more bandwidth, and everybody, as they do that, will have to upgrade their switching sitting somewhere in a closet in the building," said Antonio Neri, general manager of HP's Enterprise group.
HP Networking had $2.63 billion in sales in the past fiscal year, just 2.3 percent of total revenue, while Aruba had revenue of $728.9 million, growing at 30 percent annually on average for the past five years. That compares with Cisco’s sales of $24.1 billion across switches, routers and wireless equipment in its most recent fiscal period. To boost sales, Hewlett-Packard is aiming to offer an entire package of products that work well together.
"As the clear market leader, we have delivered unified wired, wireless and cloud-managed platforms to our customers for years and will continue to do so," said John Choi, a spokesman for Cisco, which is also undergoing a transition as new incoming CEO Chuck Robbins revamps management.
"Cisco has always had an advantage in being able to bundle and that’s hurt HP, that’s hurt Aruba," said Jason Ader, an analyst at William Blair & Co.
Hewlett-Packard will combine its sales force with Aruba's by November, when the fiscal year begins and HP Enterprise is scheduled to become an independent entity. Hewlett-Packard is also targeting China, where it has given up control of its local networking, server and storage businesses to a group led by Tsinghua University. A deal with Arista Networks Inc., announced this month, was designed to help the two vendors better compete with Cisco's data-center products.
By bringing all of Hewlett-Packard's networking products under a single system, customers will be able to manage network switches and wireless products via the same software, Orr said. Deploying the software, which is based on Aruba's technology, won't be easy. "Realistically it’s going to be hard to have one single pane of glass to manage everything in your infrastructure," Ader said. "That’s the holy grail, but it’s going to take time to get there."
Jayshree Ullal, CEO of Arista Networks, said Hewlett-Packard's decision to find partners will help it better compete with Cisco, which is seeking to do all the elements of the data center itself.
"If you try to do everything yourself, you end up doing a mediocre job," Ullal said of Cisco. "I like the way HP is thinking."
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