3Com Takes Controlling Interest in Chinese Joint Venture

3Com bought the 2 percent it needed to gain controlling interest over Huawei-3Com, giving it governance rights and control over the board of directors.

3Com Corp. on Feb. 2 announced it has bought controlling interest of its joint Chinese venture with Huawei Technologies.

3Com bought the 2 percent it needed to gain 51 percent control over Huawei-3Com Ltd. (H-3C) joint venture for $28 million, giving it governance rights and control over the board of directors.

"The management team at Huawei-3Com has done a phenomenal job. We want that team to stay in place," said Jim Freeze, vice president of global marketing for 3Com in Marlborough, Mass.

"But it was important to have a little more control with whats happening and get better alignment with the product development efforts of the joint venture. "

The plan is to improve collaboration to meet the requirements of customers in Western markets.

As an example of that, 3Com on Jan. 30 announced a new version of the 3Com Tipping Point Intrusion Prevention System, dubbed the M60, which will exploit a new high-performance switching chassis being built by the joint venture.

"Were taking that IPS product and turning it into a blade thatll go into a chassis the joint venture is building that will have a 7-, 10- and 14-slot version for 60 Gigabits [per second] of intrusion prevention in the chassis. And we are making that compatible with the Switch 8800 data center switch from the joint venture," said Freeze.

3Com officials view the joint venture, based in Hong Kong, as a rousing success in all three areas it was intended to address when it was formed in late 2003.

"We wanted to find a way to tap into the Chinese market. Their economy is on fire, but its tough for Western companies to get a presence there. Second, we wanted to find a way to completely and quickly refresh our entire enterprise portfolio of switching and routing products. [Third] Asia is a cost-effective place to do manufacturing, and in China there is a burgeoning base of engineering talent thats a fraction of the cost of engineering in the U.S. Its been a home run as measured by all three of those," said Freeze.

The $28 million price tag was negotiated as part of the original agreement when 3Com and Huawei established the joint venture as a not-to-exceed price.

/zimages/5/28571.gifTo read more about the 3Com-Huawei deal, click here.

Revenue for the joint venture for the third calendar quarter of last year was reported by 3Com to be $111 million, a 69 percent increase over the same quarter one year earlier.

H-3C in the third quarter of last year held a 31 percent share of the Chinese LAN switch market.

3Com originally paid $160 million in cash and transferred part of its Chinese operations to the joint venture for its 49 percent interest.

With its controlling interest, 3Com will appoint five directors to the H-3C board of directors, give Huawei four board members. Scott Murray, 3Coms CEO, will become chairman of the joint venture.

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