3Com forms Chinese joint venture, narrows loss

3Com Corp. and Huawei Technologies Co. Ltd. will form a joint venture (JV) to build enterprise networking equipment, 3Com announced Wednesday. 3Com also reported financial results for its fiscal third quarter, showing a net loss of US$79.2 million, about a third of the loss it reported a year ago.

The new JV will be domiciled in Hong Kong but will operate in Hangzhou, China. It will be called 3Com-Huawei in English, and Huawei-3Com in Chinese, 3Com said. For now Huawei has the upper hand, with a 51 per cent share, but 3Com has the right to increase its share from 49 per cent to 51 per cent in two years, according to the statement.

In China and Japan, the companies will sell their products under the JV’s brand, while in the rest of the world, 3Com will sell the JV’s products under its own brand through its usual distribution channels, 3Com said in a statement. This will allow 3Com to extend the high end of its existing enterprise product range by selling Huawei’s modular layer 2 and 3, 10/100/1000 MB switches and a full line of enterprise routers, the company said.

Huawei, a data networking equipment manufacturer based in Shenzhen, China, will contribute engineering, sales and marketing resources, including about 1,000 employees, and will license intellectual property related to LAN switches and routers to the JV, according to the statement. For its part, 3Com, a networking company from Santa Clara, California, will contribute US$160 million in cash, assets related to its Chinese and Japanese operations, and licenses to its related intellectual property. About 50 3Com employees will join the JV.

Bruce Claflin, 3Com’s president and chief executive officer (CEO) has been named chairman of the JV, while his opposite number at Huawei, Ren Zhengfei, will become the JV’s CEO.

3Com’s statement praised Huawei’s “low-cost engineering team in China,” but Huawei has recently been accused of keeping its engineering development costs down by copying software and designs from Cisco Systems Inc. Cisco’s lawsuit against Huawei in the matter is still ongoing.

In a separate statement Wednesday, 3Com gave details of its financial results for its fiscal third quarter. In the three months to Feb. 28, 2003, it made a loss of US$79.2 million on sales of US$245 million, compared to a year-ago loss of US$236 million on sales of US$356 million. If new accounting regulations on the evaluation of goodwill impairment introduced within the last year had been applied to the year-ago figures, 3Com would have reported a loss of US$227 million in the quarter to March 1, 2002.

Sales of connectivity products have declined in recent quarters and this trend will continue into the next quarter, the company said.