Partners: New HP H3C Joint Venture Shakes Up Chinese Enterprise Computing Market

Partners say Hewlett-Packard's new H3C Technologies enterprise computing joint venture in China sets the stage for sales growth in what has been a weak spot for HP.

Palo Alto, Calif.-based HP said Thursday that it was teaming up with Tsinghua University to create H3C Technologies.

Under the definitive agreement, HP will sell a 51 percent stake in the joint venture for $2.3 billion to a Tsinghua Holdings subsidiary, Unisplendour Corp.

[Related: Report: HP Is Close To Selling H3C China Networking Business]

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HP is billing the new H3C Technologies venture, which will be the exclusive provider of HP infrastructure in China, as a $3.1 billion "technology powerhouse," with 8,000 employees -- including 2,500 engineers -- 5,700 patents and the No. 1 position in the Chinese networking market.

HP said the new Chinese business on its own would have posted an adjusted operating profit of $400 million and adjusted GAAP net income of $300 million for the calendar year 2014.

Unisplendour will include the full HP enterprise infrastructure portfolio, made up of servers, storage and networking along with hardware support services. HP said the joint venture values the new business at $4.5 billion net of cash and debt.

HP China will maintain 100 percent ownership of its existing China-based Enterprise Services, Software, HP Helion Cloud, Aruba Networks, Printing and Personal Systems businesses.

Bob Venero, CEO of Holbrook, N.Y.-based solution provider Future Tech, No. 234 on the CRN Solution Provider 500, said he sees the enterprise joint venture leading to a stronger HP balance sheet and sales gains in the Chinese market.

"HP is doing what they need to do to drive sales growth in the Chinese market," said Venero. "There is no question that if you are not aligned properly with a Chinese-based company, you will have a much more difficult growth path there."

The new joint venture comes after HP posted an 11 percent sales drop in its networking business for its first fiscal quarter, ended Jan. 31. That networking sales decline was in large part because of a problem in the China networking business. As a result of the sales fall-off, HP made leadership changes in China and also implemented new sales incentives.

"HP is making a bold move to win in today's China," said HP CEO Meg Whitman in a statement announcing the H3C joint venture. "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. The combined company will build upon an extensive and valuable patent portfolio, best-in-class products and customer focus, and Tsinghua's world-class research capability. In one move, we have repositioned HP and H3C to accelerate overall performance and better serve our customers and partners."

Kelly Ireland, founder and CEO of Orange, Calif.-based CB Technologies, an HP Platinum partner, said the new joint venture is another example of Whitman's ability to drive winning scenarios with out-of-the-box thinking. "Meg thinks far into the future, which was not a legacy characteristic at HP prior to Meg's leadership," said Ireland.

Ireland said the Chinese joint venture is also an example of the increasing global nature of the technology solutions business. "The solution provider market is expanding globally," she said. "It's now a global market for companies like HP and CB Technologies."

HP expects the joint venture transaction to be finalized near the end of 2015. The deal still faces a Unisplendour shareholder vote and regulatory approvals.