3Com Acquires Majority Ownership of Huawei-3Com Joint Venture

(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.