HP Looking to Sell H3C Networking Subsidiary: Reports

The company, weeks after saying it was splitting in two, wants to sell at least 51 percent of its Chinese networking business, according to reports.

H3C networking

Hewlett-Packard officials reportedly are looking to sell at least 51 percent of its stake in H3C Technologies, a China-based subsidiary the tech giant inherited five years ago when it bought networking vendor 3Com for $2.7 billion.

Anonymous sources told The Wall Street Journal and Bloomberg that HP is looking for a buyer in China, though it is unclear how much of the company HP will give up. According to The Wall Street Journal, the entire H3C business could be worth as much as $5 billion.

HP bought 3Com to bolster its networking capabilities at a time when its relationship with longtime partner Cisco System was beginning to sour. Cisco that year had launched its Unified Computing System (UCS) converged infrastructure solution that included Cisco-branded servers, putting it into direct competition with HP in the data center.

Since then, HP has become a key competitor to Cisco in the networking space and has aggressively moved in the growing software-defined networking (SDN) and network-functions virtualization (NFV) spaces. In the second calendar quarter, HP officials said networking revenues grew 4 percent over the same period last year.

HP officials at the time of the 3Com deal saw the H3C business as a way to grow its footprint in the important Chinese market. The company, which has about 4,800 employees, is a significant player in the Chinese tech market, selling a broad range of networking and security hardware and software products, including switches, routers, VPNs and management software.

The climate in China for U.S. tech companies has become rougher in recent years. Officials in the United States and China have accused each other of using tech products from companies in their respective countries to spy on one another. For example, U.S. lawmakers have looked to deter government agencies and American businesses from buying networking and other gear from such Chinese companies as Huawei and ZTE for fear that the hardware could contain back doors that would allow Chinese agents to gain access to U.S. data.

China officials have pointed to such U.S. tech firms as IBM and Cisco as security threats, accusing the U.S. government of using their products to help spy on the country.

The reports of HP's interest in selling at least part of its ownership in H3C also comes less than three weeks after CEO Meg Whitman announced that over the next 12 months, the company will break into two separate entities, with one—HP Inc.—selling PCs and printers, and the other—Hewlett-Packard Enterprise—selling such products as servers, storage appliances, networking gear and enterprise software and services.

HP for several years has been hindered by a range of issues, from the decline in global PC sales in recent years and the rise of cloud computing to an unwieldy business model and instability in its management ranks. Whitman said that breaking apart HP will create two more streamlined and nimble companies that will be more focused and more competitive in their respective markets.

Sources told The Wall Street Journal that the process of selling H3C is in the early stages, and that HP officials have begun talking with private-equity firms in China to gauge their interest in the networking firm. They said that the buyer will need to be a locally-based firm for the deal to get the approval from the Chinese government.