China's top telecoms equipment maker Huawei Technologies has agreed to sell off its 49 percent stake in a joint venture with US-based 3Com for US$882 million, in a move to offload its non-core businesses.
The deal, which requires Chinese Government approval, could give 3Com full ownership of H3C. The Hong Kong-headquartered venture mainly operates in Hangzhou, the capital of east China's Zhejiang Province.
The agreement is in line with analysts' expectations. Following an agreement between the two sides, 3Com, which makes communications network equipment and software, launched a bid to buy Huawei's stake in H3C on November 15.
Huawei then made a counteroffer to buy 3Com's stake in H3C, but analysts said this was designed to force 3Com to increase its buyout price.
H3C was established in 2003 with Huawei taking 51 percent and 3Com holding the remaining stake. In October 2005, 3Com bought an additional 2 percent stake from Huawei for US$28 million, increasing its holding to 51 percent.
On that basis, a 49 percent stake could be worth US$686 million.
Proceedings from the sale of its stake in H3C could help Huawei finance its core businesses, especially mobile telecoms.
"The divestment will further enable Huawei to focus on its core business, strengthening our leadership of the fixed and mobile convergence solutions market," said Huawei Senior Vice-President Guo Ping.
"H3C has become increasingly irrelevant to Huawei's core business," said Stanley Gu, an analyst with Beijing-based eShip Consulting.
In June, Huawei signed a deal to buy its smaller domestic rival Harbour Networks, founded by a number of former Huawei executives. Harbour and H3C have almost identical product portfolios.
"But H3C is crucial to 3Com," noted Gu, as the joint venture contributes greatly to 3Com's global revenues.
3Com CEO and President Edgar Masri said "H3C is a strategic asset" for the US company.
H3C contributed US$18.2 million in net profits to 3Com for the quarter ended on August 31, while 3Com's other business unit, Secure Converged Networking, posted a US$32.5 million loss on US$156 million in revenue.
H3C focuses on the enterprise network equipment market, taking a 36.5 percent share of the Chinese market, the largest in the third quarter of this year, according to Beijing-based research house Analysys International.
But the market has become increasingly competitive, with H3C pitted against Cisco Systems, Nortel Networks and Juniper.
For Huawei, which focuses more on providing equipment to telecom operators, H3C has become a far less lucrative business, said Gu.
Huawei has been pinning its hopes on research and development activities related to 3G mobile communications technology based on the WCDMA standard, which is mainly backed by European companies such as Ericsson, Nokia and Siemens.
Rumours have been circulating that China Mobile, the nation's biggest cellular operator, could be awarded a government licence to build 3G networks based on TD-SCDMA, a home-grown Chinese 3G standard.
That could eclipse Huawei's returns on its huge investment in WCDMA.
(China Daily November 30, 2006)