( for its PCs, laptops and printers, but it s about to become a major player in another tech arena: networking gear. The Silicon Valley tech giant announced one of its largest acquisitions ever on Wednesday, agreeing to buy networking equipment maker 3Com (COMS) for $2.7 billion in cash. HP, which also announced preliminary fiscal fourth quarter earnings that beat Wall Street forecasts, said it would pay $7.90 per share for 3Com, a 39% premium over its closing price.

The move is part of a new wave consolidation in the tech industry, where companies increasingly muscle in on each others' turf. HP s acquisition of 3Com takes aim squarely at Cisco (CSCO), the incumbent computer-networking leader. But Cisco has been edging in on HP s territory with a push into computer servers and consumer products like handheld video cameras. Oracle (ORCL), best known for database software, has been trying to buy Sun Microsystems (JAVA) to get into the server market, while Dell (DELL) has bought its way into corporate computer services with its purchase of Perot Systems, tackling IBM (IBM) in that arena.

Wall Street has generally been impressed with CEO Mark Hurd s turnaround job at HP, which has yielded market-share gains for PCs and printers, and a steadily rising stock price since he started three years ago. And analysts see the 3Com deal as a positive move. 3Com has a strong presence in China, points out Kevin Hunt of Hapoalim Securities, with over 30% market share, and there could be some "tie-in benefits" to HP s other product lines. 3Com also has gross margins that are twice the average of HP s. It s saddled with high expenses too, nearly 35% of sales. But Hurd is known as a razor-sharp cost-cutter--he slashed over 15,000 jobs at HP shortly after taking over and streamlined operations and he s likely to quickly bring down costs at 3Com.

Still, HP s stock isn t cheap. It trades at a premium to other large-cap tech stocks based on its price-to-earnings growth ratio. The company offers a nice "safe haven" for tech investors, Hunt argues, but "many other technology names offer far more upside potential in an economic expansion." Most other Wall Street analysts are more bullish on the stock. Of the 31 analysts covering HP, 26 rate it a buy or strong buy and only five (including Hunt) have a hold rating on the shares, according to Thomson Reuters.

This article is an excerpt from our Early Bird markets story , which was originally published the morning of Nov. 12.