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Hewlett-Packard (HP) is making a move into the network equipment market by striking a $3.1 billion deal for 3Com in a major challenge to Cisco Systems.

The deal is the latest sign that technology giants from IBM to Oracle are increasingly encroaching in each other's markets as they seek to become one-stop shops for computing, networking and data storage. Cisco itself this year pushed into the server market, of which HP is a major player.

HP, which also reported higher-than-expected preliminary earnings yesterday, said it would pay $7.90 per share for 3Com, a 39 per cent premium over its closing price. The deal values 3Com at $2.7 billion excluding its net cash.

By buying 3Com, HP will be competing with Cisco on a wider range of network equipment, including routers and switches. 3Com also has a large presence in China and can help HP expand sales into one of the world's fastest-growing markets.

HP is already a dominant force in personal computers, IT services, servers and printers, with recurring revenue streams that have helped it during the economic downturn.