Symantec agrees to sell its minority stake in Huawei Symantec Technologies to its partner Huawei for $530 million.
Huawei Technologies will pay $530
million to buy out Symantec from the joint venture the two companies
established in 2008 to sell storage and security products, the companies said
Huawei Symantec Technologies, based in
Hong Kong, was established to integrate Symantec's storage and security
software into appliances built by Huawei Technologies to create network
security, storage and systems management products such as routers, firewall and
VPN hardware for telecommunications companies and other enterprise customers.
The joint venture launched the Oceanspace S2600 and N8300 storage platforms and
network gateway Secospace USG2000 appliance into the North American market just
Symantec owned 49 percent of the
company, while Huawei owned 51 percent.
The sale is subject to regulatory
approvals and is expected to close in the first quarter of 2012. After the sale
is complete, Symantec will receive royalty payments from Huawei for seven years
as part of an OEM arrangement for the storage and security technologies it
contributed to the appliances. Huawei will rename the company and keep the
research development centers in Beijing, Shenzen, Chengdu and Hangzhou.
"Huawei and Symantec have mutually
agreed that the next stage of growth for the joint venture would benefit from
the direction of a single owner," the companies said.
Symantec is expected to maintain its
investments in China, Enrique Salem, Symantec's CEO, said on a Nov. 15
conference call discussing the sale. The company currently has two research and
development centers and an appliance business of its own to sell Symantec
security and storage software in China.
"Symantec achieved the objectives
we set four years ago and exits the joint venture with a good return on our
investment," Salem said. The three objectives were to gain expertise in
building and selling appliances, to increase penetration in the Chinese market
and to "move closer" to the networking side of the telecommunications
segment, he said. With sales in China up 46 percent and a growing appliance
market, it was the "right time" to sell the stake, Salem said.
Symantec's management succeeded in its
strategic goals of penetrating both the Chinese market and the hardware
appliance market, Daniel Ives and James Moore, analysts with financial analyst
firm FBR Capital Markets, wrote in a research paper discussing the sale.
"We believe Symantec is poised to see improved deal flow on the heels of
resilient security growth and good execution in the field," Ives and Moore
wrote in the note.
The $530 million sale price represents
a return of "approximately 3.5 times" the original investment in the
joint venture, James Beer, Symantec CFO and executive vice president, said on
the call. Symantec originally invested $150 million when the venture launched
in 2008. However, the company reported $128 million in losses for its share of
the venture's losses from February 2008 to December 2010, according to the most
recent annual report filed with the Securities and Exchange Commission.
The sale was "a good thing for
Symantec in that it's been a drag to their earnings per share," Brian
Freed, an analyst at Wunderlich Securities, told Reuters.
The Symantec employees who work for the
joint venture will transfer to other divisions within Symantec, Salem said.