TELECOMS: HP Joins Intel As Tsinghua Unigroup Partner
Bottom line: Tsinghua Unigroup’s pending purchase of a controlling stake in H3C could mark the start of a new partnership with HP in routers, but is unlikely to affect its older partnership with Intel in the telecoms chips.
Semiconductor company Tsinghua Unigroup was already a name to watch after a string of major deals last year including a tie-up with Intel (Nasdaq: INTC), and now it’s adding to its allure with word of a major new alliance with Hewlett-Packard (NYSE: HPQ). This latest deal would trump the earlier one from Intel in size, and would see Unigroup buy a controlling 51 percent stake of HP’s China-based H3C unit, which makes routers and switches that compete with US giant Cisco (Nasdaq: CSCO).
It’s not completely clear how much Unigroup would pay for the stake, though the amount would almost certainly be more than the $1.5 billion that Intel paid last year for 20 percent of a new company that Unigroup created through its merger of 2 of China’s leading telecoms chip designers. I’m no telecoms expert, but I’ll admit this latest deal is leaving me just a bit puzzled due to the very different natures of the businesses of H3C and the earlier tie-up involving Intel, which revolved around telecoms microchips.
I’ll return to that discussion shortly, but first let’s take a closer look at the latest deal that could quite possibly become the biggest purchase this year in China’s high-tech sector. According to the latest reports, Tsinghua Unigroup has emerged as the preferred bidder for the 51 percent stake of H3C, and a final deal could come within weeks. (English article; Chinese article)
The reports are a bit unclear about the size of the deal, with some saying HP is seeking up to $5 billion for the stake while others say H3C has a total value of $5 billion. But either way, the deal is likely to be worth at least $2.5 billion, and possibly quite a bit more. The reports say other bidders had included China Huaxin Post and Telecommunication Economy Development Center, which seems to indicate the field was limited to more R&D-type companies and didn’t include big private names like Huawei and ZTE (HKEx; 763; Shenzhen: 000063).
Word of the pending deal comes after media reported last October that HP was looking to sell 51 percent of H3C to an Asian partner as part of its broader strategic decision to break itself into 2 companies, one focused on enterprise business and the other on its more consumer-focused PCs and printers. (previous post) Those reports said that HP valued H3C at about $5 billion, so it does seem like the controlling stake should be worth $2.5 billion or perhaps a bit more if those earlier reports are correct.
I had speculated at the time of the earlier reports that a larger company like Huawei, ZTE or Lenovo (HKEx: 992) might emerge as the buyer for the H3C stake, so it does come as a bit of a surprise that a smaller player like Unigroup is the preferred bidder. Unigroup was in a steady string of headlines last year, after purchasing 2 of China’s largest private telecoms chipmakers, Spreadtrum and RDA Microelectronics, and merging them into a single company. It then sold 20 percent of that company to Intel for $1.5 billion. (previous post)
As I’ve said above, this latest move looks a bit strange due to the very different product lines of H3C and the Intel-backed chipmaker. H3C is actually a former China-based joint venture between Huawei and US company 3Com, which was later acquired by HP. It competes directly with Cisco making routers and switches that power many smaller enterprise-based telecoms networks. By comparison, the Intel tie-up makes high-tech components, namely microchips, rather than a finished product.
We’ll have to wait and see if this new deal actually closes, and how it’s structured. It seems unlikely that HP and Intel would become actual partners through their Unigroup connections, and instead that the Chinese company would keep the routers and chips as 2 separate divisions. Still, the 2 areas are linked in their focus on telecoms, and it’s possible we could ultimately see Unigroup fold the H3C stake into its Intel partnership.
Related posts:
