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HP re-aligns its enterprise activities in China through H3C

Tsinghua University Flickrcc

Tsinghua University © flickr/CC-licence/Jens Schott Knudsen

HP is partnering with China’s Tsinghua Holdings to create a new data networking business called H3C. In a somewhat convoluted corporate process, HP has set up H3C from the merger of H3C Technologies and HP’s China-based server, storage and technology services businesses, and then sold a controlling 51 per cent stake to Unisplendour, which is a subsidiary of Tsinghua Holdings, for $2.3 billion.

H3C Technologies has an interesting backstory. It was created in 2003 as a joint venture between former enterprise vendor 3Com and China’s Huawei (which, incidentally, led to concerns over cyber security, business practices and Huawei’s government links and put the Chinese company well and truly in the spotlight, though not for the most desirable of reasons). 3Com bought out Huawei’s interest in the JV in 2007 for $882 million, and was itself finally acquired by HP two years later for $2.7 billion. The new H3C generated adjusted revenues of $3.1 billion and operating profit of $0.4 billion in 2014.

Tsinghua Holdings is the asset management arm of China’s Tsinghua University, and Unisplendour is a publicly traded operating subsidiary, specialising in software and systems integration.

The new H3C company will be HP’s exclusive provider of servers, storage and networking, as well as hardware support services in China. The company believes H3C will be “a technology powerhouse” in China with a market-leading portfolio that will be the number one company in networking and a leader in servers, storage and technology services. Meanwhile, HP China will maintain full ownership of its existing China-based enterprise services, software, Helion Cloud and Aruba Networks businesses.

“HP is making a bold move to win in today’s China,” said Meg Whitman, Chairman and CEO of HP. “Partnering with Tsinghua, one of China’s most respected institutions, the new H3C will be able to drive even greater innovation for China, in China. In one move, we have repositioned HP and H3C to accelerate overall performance and better serve our customers and partners.”

The newly restructured H3C will have 8,000 employees and approximately $3.1 billion in annual revenue, and promises to build on its innovation work, which has already earned it over 5,700 patents.

“We see extensive synergies with the new H3C,” said Weiguo Zhao, Chairman of Unisplendour. “Tsinghua University’s leading R&D capability, wide domestic resources, and vast human capital resources will empower the new H3C’s growth in the short-term, mid-term, and long-term.”

The transaction is expected to close near the end of 2015, subject to Unisplendour shareholder vote and regulatory approvals. Interestingly, the new H3C’s biggest local rival is none other than Huawei. According to research firm IDC, Huawei has a 18.5 per cent share of the China enterprise hardware market, with the new H3C second with 16.5 per cent.

“Unisplendour’s acquisition of H3C and HP Enterprise Business is profoundly significant for China’s IT market,” said Kitty Fok, Managing Director of IDC China. “The developing model of cooperation between multinationals and local vendors will lead to greater competition in the future. If the new H3C effectively manages the transition to leverage the strengths of each company, they will be poised to become a new giant to challenge the leading local vendors such as Lenovo and Huawei.”

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