Networking equipment vendor 3Com Corp has purchased an additional 2% interest in the Huawei-3Com Ltd, H-3C, joint venture from its partner Huawei Technologies Co Ltd to take it stake to 51% and allow the company’s figures to be incorporated into its own accounts.
Huawei agreed in October 2005 to sell the shares for $28m, and the deal has now received final approval from the Chinese government.
When it released its third-quarter figures, 3Com reported that H-3C’s revenue in the quarter to September 30 increased by 69% to $111m and it recorded a modest operating loss of $2m. The joint venture has enabled 3Com to regain lost ground in the enteroprise networking market from its more successful competitor Cisco Systems, and the company quoted figures from analysts IDC that H-3C currently holds a 31% share of the Chinese LAN switch market.
H-3C has more than 3,400 employees, 1,700 of whom are engineers, and it has given 3Com access to a talented and inexpensive pool of R&D resources and manufacturing facilities. Revenue from H3C-sourced products sold by 3Com grew by 37% to more than $20m in its second quarter and it is relying increasingly on the company’s products to sell into world markets.
CEO Scott Murray said that when the joint venture was formed in 2003, it aimed to establish a substantial presence in China, to create a resource capable of building switching and routing products faster than it could deliver on its own, and to capitalize on a rapidly growing pool of engineering talent. We are extremely pleased with Huawei-3Com’s performance, and its potential for continued growth, he said.
With majority control of the joint venture, Murray will become chairman, and 3Com will appoint five directors to the board while Huawei will appoint four directors. The consolidation of its financial results will give 3Com’s figures an immediate boost, but it said it has to determine how to meet accounting standards around controlling interests in joint venture relationships.