Corporation announÂced that it has purchased from Huawei an additional two perÂcent
interest in Huawei-3Com Ltd (H-3C), a China-based joint venture formed by 3Com
and Huawei in Nov 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 Oct 28, 2005, 3Com reached
an agreement with Huawei to gain majority control of the joint venture, subject
to Chinese governÂment approval and usual closing conditions. 3Com agreed to
pay Huawei $28 million in consideration for two percent of the outstanÂding
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
preÂsence in China, second, to create a resource capable of building 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, 3Com.
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 Sept 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. Murray will
become Chairman of the joint venture. 3Com intends to consolidate the joint venÂture's
financial results once it has determined that it can satisfy all of the
requirements of governing accounting stanÂdards around controlling interests in
joint venture relationships.