HP Set to Sell H3C Networking Biz to China’s Tsinghua Unigroup

Hewlett-Packard is set to sell a controlling stake in its China-based networking subsidiary H3C Technologies to Chinese tech vendor Tsinghua Unigroup.

According to reports in the Wall Street Journal and Reuters, the two companies on April 23 signed a letter of intent to cooperate, and have been waiting since that time for the go-ahead from China’s National Development and Reform Commission. An announcement could come as early as May 21, and the value of the deal could be as much as $2 billion to $5 billion, according to the reports.

HP put the subsidiary up for sale a year ago and has talked with multiple groups from China about the company. According to Reuters, China Huaxin Post also was making a push to buy H3C. China Huaxin Post last year bought an 85 percent stake in Alcatel-Lucent Enterprise for $225 million, broadening its portfolio in the highly competitive communications market that includes such heavyweights as Cisco Systems, Ericsson, Microsoft, Avaya and Huawei.

If the deal goes through, Unigroup will own 51 percent of H3C, which HP acquired more than five years ago when it bought networking vendor 3Com for $2.7 billion. H3C was created in 2003 in a joint venture between Huawei Technologies and 3Com. H3C, which sells networking gear such as switches and routers to enterprises, has about 5,000 employees, according to the company’s Website.

HP’s deal with Unigroup would come at a time when U.S. tech companies are looking for ways to gain greater traction in a rapidly growing and highly desirable Chinese market, and are seeing partnering with Chinese vendors as one avenue to doing so. The path has become rockier in recent years due to strained relations between China and the United States fueled by concerns over cyber-espionage. U.S. lawmakers have worked to limit the use of networking technologies from such Chinese companies as Huawei and ZTE due to national security concerns that the Chinese government could use those products to gain access to U.S. networks.

Chinese government officials have pushed back against such U.S.-based companies as Cisco and IBM, both in retaliation for the U.S. treatment of Huawei and ZTE and because of information from former National Security Agency analyst Edward Snowden that indicated the U.S. government’s use of tech equipment from U.S. vendors to spy on other countries.

According to the Wall Street Journal, it was this strained relationship between the two countries that convinced HP to open up H3C only to Chinese vendors, assuming that companies from other countries would have a more difficult time getting approval from the Chinese government.

HP would not bet the first partnership with a U.S. company by Tsinghua Unigroup. In September 2014, Intel announced a $1.5 billion investment to gain a 20 percent stake in the company, a state-owned venture that runs Chinese chip designers RDA Microelectronics and Spreadtrum Communications. The investment is one of several moves by Intel to make inroads into the Chinese market. For example, earlier in 2014, Intel announced it was partnering with Chinese chip maker Rockchip to help drive the market for Intel-based tablet chips. In all, Intel CEO Brian Krzanich has said his company has invested more than $7.7 billion in China over the past three decades and currently has about 7,500 employees in 27 sites around the country.

The H3C deal also comes as HP prepares to break into two companies later this year. One company, Hewlett-Packard Enterprise, will focus on business IT products and services, while HP Inc. will sell PCs and printers.