3Com has paid $28 million to acquire a majority stake in a joint venture with Chinese technology company Huawei, suggesting the U.S. networking provider is ready to raise its profile in China.

has paid $28 million to acquire a majority stake in a joint venture with Chinese technology company Huawei, suggesting the U.S. networking provider is ready to raise its profile in China.

Marlborough, Massachusetts-based 3Com said Thursday it agreed with Huawei to take majority ownership in the China-based joint venture, Huawei-3Com (H-3C) Ltd., last October. The sale was completed on January 27 of this year.

The Chinese government has approved the deal, which raises 3Com’s stake by 2 percent to 51 percent ownership of the venture. Huawei has a 49 percent stake. The venture had originally been set up in November 2003.

It is common for Western companies to set up joint ventures with Chinese companies in order to enter the market. The change in control is one signal that 3Com feels ready to assert more of a presence in China.

According to the research firm IDC, H3C currently holds 31 percent of the Chinese local area network switch market. The joint venture also builds routers.

“We are encouraged by the timely execution of this deal, which indicates good operational management,” wrote Bear Stearns analysts Wojtek Uzdelewicz and Matt Shimao in a research note.

Shares of 3Com dipped $0.18 to $4.78 in recent trading.

Opening Up China’s Networks

The move comes on the heels of Huawei’s joint venture with Canadian networking provider Nortel Networks on Wednesday (see Huawei Teams with Nortel). The Chinese technology provider seems to be opening up a path for Western networking companies to enter the rapidly expanding Chinese market.

Huawei Teams with Nortel

John Vincenzo, 3Com’s director of corporate communications, distinguished 3Com’s partnership with Huawei from Nortel’s by describing the Nortel agreement as more enterprise and service focused, while the 3Com agreement is more about the market.

“When we formed the joint venture, one of our objectives was to enter the Chinese market, another was to refresh our networking, routing, and switching portfolio, and the third was to tap into a fast-growing and diverse engineering talent pool,” he said. “By all accounts, we’ve been successful.”

With the change in majority control, 3Com will now appoint five directors to the board of the joint venture, and Huawei will appoint four.

The joint venture is headquartered in Hong Kong, but its primary operations occur in Hangzhou, China. H-3C employs more than 1,700 engineers. The venture saw revenue of $111 million in the third quarter ended September 30, 2005, a 69 percent increase over the same quarter in 2004.

3Com CEO Scott Murray is taking over as chairman of H-3C. “We are extremely pleased with Huawei-3Com’s performance and its potential for future growth,” he said.

3Com plans to consolidate the joint venture’s financial results once it has determined it can satisfy all of the accounting standards that govern controlling interests in joint ventures.

“We note that determination of whether 3Com can consolidate the JV’s results is still pending,” wrote Mr. Uzdelewicz and Mr. Shimao. “To consolidate the JV, 3Com must establish that it has ‘effective control’ of the JV.”