3Com Acquires Majority Ownership of Huawei-3Com Joint Venture
Thursday February 2, 9:44 am ET
MARLBOROUGH, Mass.--(BUSINESS WIRE)--Feb. 2, 2006--Continuing its innovative approach to becoming a leading provider of secure, converged networking solutions to global enterprises, 3Com Corporation today announced that it has purchased from Huawei an additional two percent interest in Huawei-3Com, Ltd. (H-3C), a China-based joint venture formed by 3Com and Huawei in November 2003. The sale was completed on January 27, 2006 following final approval from the government of the People's Republic of China, resulting in 3Com owning 51 percent of the joint venture and Huawei owning the remaining 49 percent.
On October 28, 2005, 3Com reached an agreement with Huawei to gain majority control of the joint venture, subject to Chinese government approval and usual closing conditions. 3Com agreed to pay Huawei $28 million in consideration for 2 percent of the outstanding shares of H-3C owned by Huawei - an amount that was established as part of the original H-3C formation agreements as a "not-to-exceed" price.
"When the joint venture was formed in 2003, we had three key objectives: First, to establish a substantial presence in China, the world's fastest growing market; second, to create a resource capable of building enterprise-class, cutting-edge switching and routing products faster than we could deliver on our own; and third, to capitalize on a rapidly growing pool of engineering talent," said Scott Murray, president and CEO of 3Com. "We are extremely pleased with Huawei-3Com's performance, and its potential for continued growth."
According to industry research firm, IDC's Q3 2005 APAC LAN tracker, H-3C currently holds 31 percent share of the Chinese LAN switch market. Additionally, in its most recent financial earnings announcement, 3Com reported that during its calendar third quarter ended September 30, 2005, Huawei-3Com revenue was $111 million, an increase of 69 percent over the same period in the prior year. Gross margin for the quarter was 42 percent.
With the change in majority control of the joint venture, 3Com will appoint five Directors to the H-3C Board of Directors and Huawei will appoint four Directors. 3Com CEO, Scott Murray, will become Chairman of the joint venture. 3Com intends to consolidate the joint venture's financial results once it has determined that it can satisfy all of the requirements of governing accounting standards around controlling interests in joint venture relationships.
Founded in November 2003, H-3C is a joint venture between 3Com and Huawei Technologies that designs, manufactures and sells a broad portfolio of networking equipment. The company is headquartered in Hong Kong with its primary operations based in Hangzhou, China. H-3C employs more than 1,700 engineers currently working for the joint venture, the majority of whom has been hired since the joint venture's inception. This large, talented engineering team continues to release high-quality infrastructure products, which are sold by 3Com throughout the world.
About 3Com Corporation
3Com Corporation (NASDAQ: COMS - News) is a leading provider of secure, converged voice and data networking solutions for enterprises of all sizes. 3Com offers a broad line of innovative products backed by world class sales, service and support, which excel at delivering business value for its customers. Through its TippingPoint division, 3Com is the leading provider of network-based intrusion prevention systems that deliver in-depth application protection, infrastructure protection, and performance protection for corporate enterprises, government agencies, service providers and academic institutions. For further information, please visit www.3com.com, or the press site www.3com.com/pressbox.
Copyright © 2006 3Com Corporation. 3Com and the 3Com logo are registered trademarks and TippingPoint is a trademark of 3Com Corporation. All other company and product names may be trademarks of their respective holders.
This press release contains forward-looking statements within the meaning of the federal securities laws, including statements regarding 3Com's intention to consolidate the operating results of H-3C in its financial statements once it has determined all of the requirements of governing accounting standards around controlling interests in joint venture relationships have been satisfied. These forward-looking statements are subject to risk and uncertainties that could cause actual results and events to differ materially, including 3Com's on-going evaluation of the accounting rules applicable to consolidation, its determination that the structure of H-3C satisfies these requirements, which 3Com may conclude it does not, and the concurrence of 3Com's independent registered public accounting firm with the determination reached by 3Com.
Source: 3Com Corporation