3Com Pays $882M For Huawei Stake

Networking equipment maker 3Com on Tuesday said it will pay $882 million to fully own a China joint venture with Huawei Technologies.

The agreement to
purchase Huawei’s 49 percent stake gives the Santa Clara, Calif.-based 3Com
a “well-established, stand-alone business with substantial market share in
China,” CEO Edgar Masri said in a statement.

3Com was “very excited at the prospect of owning
100 percent of the venture,” he said. Valued at $1.8 billion, full ownership of the
Huawei-3Com (H3C) joint venture removes a roadblock to greater head-to-head
competition with networking giant Cisco Systems .

“H3C is a strategic asset and we believe that 3Com is well positioned to
help it expand its global presence,” Masri said. Increasing 3Com’s stake in
H3C was a top priority when Masri was named CEO in August.

Although the partnership allowed Huawei, already a networking powerhouse in
China, to distribute its products in the U.S. and Europe, 3Com was limited
to distributing the H3C-branded network gear outside China and Japan, as
internetnews.com previously

Gartner analyst Mark Fabbi considers today’s agreement as the least-worst option for 3Com. “3Com was caught in the proverbial rock and a hard place,” he told

If 3Com had not bought out Huawei’s stake in the joint venture, the company,
which Fabbi likened to the Chinese Cisco, would have bought out 3Com. “In
either case it was pretty clear that Huawei wanted out of the relationship
with 3Com,” he said.

While 3Com painted a picture of growth, the analyst predicts a quick
decline. After Huawei’s sales strength leaves, “I would expect the revenues
coming from what used to be the joint venture will peak in the next quarter
or two, then start to slide downward,” Fabbi said.

Although 3Com said Huawei would abide by an 18-month non-compete clause,
the analyst expects the Chinese network
company to return to the market following that self-imposed limit.

It will be difficult for 3Com to retain talented employees. Fabbi said the
company has an aura reminiscent of the Silicon Valley in the late 1980s. “I
would expect that working for 3Com in China just doesn’t have the same
feel,” he said.

The agreement marks a period of uncertainty for 3Com. “Going forward, there
is some product uncertainty and financially 3Com is in a worse position,”
Fabbi said.

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