Hewlett-Packard is looking to make a strong play in China by entering into a joint venture with the country's Tsinghua University that will result in a new company that will sell enterprise infrastructure technology into the potentially lucrative market.
The deal announced May 21 is the culmination of months of speculation that HP was planning to sell a majority stake in its H3C networking technology subsidiary in China to Tsinghua Unigroup. However, the agreement goes beyond simply selling a controlling stake in the company.
According to the two companies, they are creating a new entity called H3C that comprises H3C Technologies as well as HP's China-based server, storage and technology services business. Under the agreement, Tsinghua Holdings—a group owned by Tsinghua University—is buying a 51 percent stake in the new company for about $2.3 billion, creating a tech giant in China that will be the country's top networking vendor and among the leaders in such industry segments as servers, storage and technology services.
The new H3C will become the exclusive provider in the country of HP's server, storage and networking products, and hardware support services, according to the vendors. Once the deal closes—which is expected to happen by the end of the year—the new company will become a subsidiary of Unisplendour, a subsidiary of Tsinghua Holdings and a software vendor and system integrator in China. Unisplendour also has been a distribution partner of HP since 1999.
H3C will have about 8,000 employees and $3.1 billion in annual revenue.
HP China will retain complete ownership of other HP technology businesses in the country, from enterprise services and software to Aruba Networks, printing, PC and HP's Helion Cloud technology.
"The combined company will build upon an extensive and valuable patent portfolio, best-in-class products and customer focus, and Tsinghua's world-class research capability," HP CEO Meg Whitman said in a statement. "In one move, we have repositioned HP and H3C to accelerate overall performance and better serve our customers and partners."
Whitman and other HP executives are scheduled to announce quarterly financial earnings later May 21.
The deal comes as U.S. tech companies have found it more difficult to grow their businesses in China, which has been encouraging the use of products from Chinese vendors in the wake of revelations from former National Security Administrative analysts Edward Snowden that the United States had used products from U.S. tech firms for cyber-espionage efforts. At the same time, U.S. lawmakers have worried that using technology from Chinese firms like Huawei Technologies and ZTE pose a national security threat.
The Wall Street Journal reported earlier this week that the U.S. Navy is looking to get rid of the IBM x86 servers from some weapons systems after Chinese company Lenovo last year bought IBM's low-end server business for $2.1 billion.
Other U.S. tech vendors also are seeing partnering with Chinese companies as a way to gain a better foothold in the country. For example, giant chip maker Intel last year announced it was investing $1.5 billion for a 20 percent stake in Tsinghua Unigroup, which runs Chinese chip designers RDA Microelectronics and Spreadtrum Communications.
HP also is making the deal as it prepares to break into two companies later this year. One company, Hewlett-Packard Enterprise, will sell business IT products and services—including servers, storage, networking and cloud products—while HP Inc. will sell PCs and printers.