(Bloomberg) -- Hewlett-Packard Co. Chief Executive Officer Meg Whitman is contemplating the computer maker’s biggest deal in more than three years, showing the growing urgency of using deals to bulk up a corporate business beset by slowing demand.
The company is in talks to acquire Aruba Networks Inc., people with knowledge of the matter said. A purchase of Aruba, which has a market value of about $2.4 billion, may be announced as early as next week.
Given Hewlett-Packard’s pending split into two companies, a lower profit forecast and questions about its ability to adapt in a shifting corporate market, analysts say making a multibillion-dollar purchase right now is risky. Yet Whitman may be targeting Wi-Fi networking-gear maker Aruba to tackle those very challenges, chasing revenue in a growing market and in China with a smaller deal that won’t significantly crimp the company’s balance sheet.
“Networking is a very important business to HP,” Whitman said Tuesday on a conference call to discuss earnings. “We will continue to invest in these businesses.”
Hewlett-Packard’s shares fell 9.9 percent Wednesday after the company reduced its profit forecast for the current quarter and fiscal year. The Palo Alto, California-based company said the rising U.S. dollar is hurting growth, while fiscal first-quarter sales slipped in every division, including the enterprise group, which includes corporate servers and networking gear.
The computer maker is also navigating a plan to break itself into two -- one company focused on corporate equipment and services, and the other on personal computers and printers - - by the end of this year.
Buying Sunnyvale, California-based Aruba would bolster Hewlett-Packard’s networking business, which turned in sales of $562 million in the quarter that ended in January, an 11 percent decline from a year earlier. Aruba posted total sales of $207.8 million for the quarter that closed Oct. 31, representing growth of 29 percent.
Hewlett-Packard has also been in the enterprise wireless market, but has lost share in recent years. While it would still be far behind Cisco Systems Inc., which has almost 50 percent share, the combined company would have about 20 percent of the market, said Rich Valera, an analyst at Needham & Co. who recommends buying Aruba shares.
“Aruba’s been gaining share, and HP has been losing share,” Valera said. “It’s at the leading edge, with really good products.”
Growth in China, traditionally a challenging market for Western corporate-technology firms, may be another reason Hewlett-Packard is looking at Aruba. Hewlett-Packard already had to shuffle management at its Chinese networking company H3C Technologies Co. last year, and is said to be in talks to sell its majority stake in that business. Aruba would give Hewlett-Packard another inroad into the world’s second-largest economy, at a time when other companies are facing trouble there.
Aruba has been trying to build up a presence in China. The company last month closed a significant deal with Wanda Group, China’s largest commercial-property company, to deploy its technology into 59 of Wanda’s malls and plazas. Though Aruba Chief Financial Officer Michael Galvin said the company has been “challenged” in Asia in recent quarters, the company’s Asia Pacific revenue rose 13 percent in the three months that ended in October.
Though Hewlett-Packard’s larger acquisitions, such as its deals for Autonomy Corp., Electronic Data Systems Corp. and Compaq Computer Corp., have gotten the most attention in recent years, the relatively smaller potential size of a deal for Aruba also may make it attractive. On Tuesday, Whitman said in an interview that the company was now in a position to make purchases, after several years of holding off on bigger deals as it dealt with the aftermath of the $10.3 billion buyout of Autonomy in 2011. That purchase led to a $8.8 billion writedown.
The consensus among analysts is that Hewlett-Packard has a better record with smaller, more targeted purchases. The 2010 buyouts of security vendor ArcSight LLC for $1.48 billion and the U.K.’s 3Par Inc. for $2.1 billion have been viewed as successful.
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