Daily Archives: July 22, 2011

Huawei Tries Not to Get Fooled Again

The evolution of the joint venture between Huawei and Symantec — called, perhaps not surprisingly, Huawei Symantec — has taken an interesting turn recently. Originally established in China with a remit covering storage and security products, Huawei Symantec has been expanding geographically, beyond China to other markets globally, and technologically, into networking infrastructure and servers from its original offerings of storage and security boxes.

As a joint venture, Huawei Symantec has some familiar elements. It’s based on a “China-out” strategy, which we’ve all seen before, and it’s only now hitting American shores after revving up its engines overseas. In some ways, it’s deja vu all over again for Huawei. We’ve seen this show before, though perhaps the ending will be different this time.

Trip Down Memory Lane

Before returning to the present, let’s take a quick excursion down Memory Lane, shall we?

In March 2003, when Huawei and 3Com Corporation formed a joint venture company, called Huawei-3Com (H3C), Huawei owned the majority stake, 51 percent, with 3Com holding the other 49 percent. The joint venture focused on research and development, production, and sales of data-networking products, with Huawei retaining territorial sales rights for “greater” China and Japan, and 3Com, through its own brand, having sales jurisdiction for the rest of the world. The JV agreement also accorded 3Com the right to buy two percent of the joint entity’s stock from Huawei during a two-year period, thus giving 3Com the option to take a controlling interest.

3Com provided financial support for the joint venture, whereas Huawei provided technology, products, and the H3C workforce in China.

Eventually, Huawei sold two percent of its take in the joint venture to 3Com, which then assumed a controlling interest of 51 percent. Subsequently, in 2006, Huawei divested its remaining 49 percent in H3C to 3Com for $880 million.

Thwarted Ambitions

China-based H3C came to represent the most valuable asset in 3Com’s possession. When Bain Capital and Huawei later tried to buy 3Com for approximately $2.2 billion — the acquisition ultimately was thwarted on national-security grounds by the US government — the H3C component was valued at about $1.8 billion, the legacy 3Com business at just $400 million.

If the Bain-Huawei acquisition of had been consummated, Bain would have owned 83.5 percent of 3Com, Huawei 16.5 percent. As we all know, 100 percent of 3Com is now owned by HP, where it forms a growing proportion of HP Networking.

Anyway, having taken that contextual excursion, let’s amble back to Huawei and Symantec and their joint venture. The point is, I’m sure Huawei learned some extremely valuable lessons from its entanglement with 3Com and from H3C, the JV love child they had together.

Origins of Huawei Symantec

In May 2007, as reported by ZDNet, Huawei Technologies and Symantec announced plans to establish a joint venture to develop and distribute security and storage appliances to telecommunications carriers and enterprises worldwide.

Headquartered in Chengdu, China, the joint venture was 51-percent owned by Huawei, with Symantec holding the remaining 49 percent stake.

Huawei contributed its telecommunications storage and security businesses, including its integrated supply chain and product-development practices. Symantec contribute $150 million toward the joint venture’s growth and expansion, as well as some of its enterprise storage and security software licenses, working capital and management resources. In addition, the joint venture had access to Huawei’s intellectual property (IP) licenses, research and development capabilities, manufacturing expertise and engineering resources, including more than 750 China-based employees.

A Symantec filing with the SEC indicated that the he joint venture lost $63 million on revenue of $224 million in 2009.

Reviewing Options

Recently, Symantec CEO Enrique Salem said that his company is reviewing its options regarding its joint venture with Huawei. Just as 3Com had before, Symantec has the right to buy an additional two percent of the joint venture for about $28 million. Salem said that Symantec and Huawei are discussing whether Symantec will exercise that right, or whether the two companies will sell a stake in the venture through an initial public offering. According to Salem, a decision, one way or the other, will be reached by the end of the year.

As I said earlier, in some respects, it’s like deja vu all over again, a reprise of the Huawei-3Com saga.

What’s different, though, is that, through Huawei Symantec, China’s $28-billion telecommunications-equipment titan already has gained entry to the US market. With its 3Com joint venture, 3Com retained sales rights outside greater China and Japan. This time, Huawei retains, as of today, 51-percent ownership in a joint venture that has a worldwide marketing and sales mandate. That’s an important distinction.

Bigger Canvas, Cloud Ambitions 

Now, let’s consider what this joint venture is selling. Whereas H3C was all about data-networking boxes, Huawei Symantec is painting on a much bigger canvas. It’s got the networking gear, check, but it also has storage, servers, security appliances, and it has plans to provide data-center management software, too. Like so many others — Cisco, HP, Dell, Oracle, IBM — it’s heading for the cloud.

And, as Ovum suggested in May, Huawei has major cloud ambitions:

“Huawei’s cloud strategy, comprising hardware (compute, storage), software (virtualization, distributed file system, database management), and services (“cloud in a box”), was a well-kept secret. Huawei’s overwhelming barrage of claimed cloud capabilities included a platform, “SingleCloud,” integrated content distribution networking and caching, and policy and charging control. Huawei highlighted the use of cloud-based storage and computing for its 10,000-person Shanghai R&D operation as early proof of its capabilities, noting energy savings, better data security, and faster inclusion of new employees as benefits it has accrued.”

Some, if not most, of that technology will find its way into the Huawei Symantec data-center offerings. If you look at the Huawei Symantec website, some of the hardware is there now — storage, servers, some networking gear, security appliances.

Cue The Who

At the very least, Huawei, on its own and through this joint venture with Symantec, can add to Cisco’s problems by further contributing to the commoditization of switches and routers and by putting a margin squeeze on converged data-center solutions. As if Cisco doesn’t have enough problems, now this threat looms on the horizon.

In the past, I had dismissed the possibility of a Cisco acquisition of Symantec, but — given the fear, loathing, and increasing desperation on Tasman Drive these days — I’m wondering whether Cisco is looking at Symantec in a different light now, especially within the context of Big Yellow’s expanding relationship with Huawei.

If Symantec could buy that controlling two-percent share from Huawei, well . . . .

Then again, Huawei must  have learned from its trials and tribulations with H3C. It’s surely looking for a different outcome this time.

Cue The Who’s “Won’t Get Fooled Again.”