3Com Enters Joint Venture With Chinese Networking Vendor

in a patent and copyright-infringement lawsuit brought by Cisco Systems.

Under the agreement, 3Com will brand and sell products from the joint venture,including Huawei's full line of enterprise routers and high-end switches,in the United States and other markets outside China and Japan.

3Com President and CEO Bruce Claflin dubbed the deal "perhaps our boldest move yet." The venture marks 3Com's return to the high-end switch arena after abandoning the market in 2000.

The new offerings should give partners profitable alternatives to the eroding margins on Cisco products, said Tim McNicoll, business consultant at Heartland Business Systems, a solution provider based in Little Chute, Wis.

3Com is contributing $160 million, licenses to its enterprise products and its enterprise sales and service operations in China and Japan in return for a 49 percent stake in the joint venture, called 3Com-Huawei in English and Huawei-3Com in Chinese. Huawei holds a 51 percent stake in the venture, which has exclusive rights to sell its products and heritage 3Com products in China and Japan.

Claflin said 3Com will begin training channel partners on the new products so they can hit the market running when the deal closes. The joint venture, which must receive regulatory approval in the United States and China, is expected to close during 3Com's fiscal 2004 first quarter, which begins in June.

Claflin declined to comment on Cisco's suit against Huawei but said he's "confident that products shipped from the joint venture will be unique, compelling and designed with complete respect for all companies' intellectual property."

Last week, 3Com reported a substantially narrowed fiscal third-quarter loss even as revenue dropped 31 percent. The results were in line with the lowered sales forecast 3Com provided earlier this month.

For the quarter ended Feb. 28, 3Com reported a loss of $79.2 million, or 22 cents per share, down from a loss of $236.1 million, or 67 cents per share, the same quarter a year ago. Revenue for the quarter slipped to $244.9 million, down from $356 million a year ago.