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 Nov. 14.
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 last year.
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.