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3Com acquires majority ownership of Huawei-3Com JV   

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DQW Bureau
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3Com

Corporation 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 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 govern­ment approval and usual closing conditions. 3Com agreed to

pay Huawei $28 million in consideration for two 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.

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“When the joint venture was

formed in 2003, we had three key objectives: First, to establish a substantial

pre­sence 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 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.

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