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H3C deal to impact Chinese tech markets

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HP Technology Company and China Unis Company have officially announced Unis Company’s acquisition of a 51% share of H3C Technologies and the HP enterprise business in China (including server, storage and technical services).
The companies have announced they will work together to build a new H3C in a deal that has a major impact on the competitive landscape in multiple ICT markets.

Founded in November 2003, H3C was originally a joint-venture company of Huawei and 3Com. 3Com since acquired H3C’s share from Huawei and HP acquired 3Com, so H3C effectively becomes a sub-brand of HP.

Over the past few years, H3C has achieved great performance in the networking equipment market of China. According to IDC data, HP/H3C holds the number one position in the switch market in China (30,9% share), number one in the enterprise WLAN market and number three in the router market.

According to Steven Hu, research manager of IDC networking research: “In the past, the R&D, manufacturing and marketing of H3C are in China, but they had a foreign parent company. This caused challenges for H3C for implementing large networking equipment projects, especially those driven by the Chinese government. When this deal is done with Unis and HP, H3C will become a local vendor and will pose a serious threat to Huawei and Cisco, significantly heating up the competition.”

HP was one of the earliest foreign entrants into the Chinese market, establishing itself as a key player in the China server and storage market. According to IDC Tracker data, in 2014 HP is the number three server vendor in China with 15% market share (including both x86 and non-x86 server), and the number four storage vendor with 7,4% market share.

For the new H3C, the change of shareholding will bring long term benefit. When they gain a state-owned holding company, they will benefit from the IT localisation trend.

However, there are many questions that the new H3C must answer, according to IDC.

Firstly, with HP as an investor but not a holder of this new group, how can it strike a balance between inheriting HP’s product design features and incorporating Chinese characteristics into future product R&D?

Secondly, will there be a consistent sales and services strategy between HP global and the new H3C in China? There are many HP users in China in the branch office of a global company/account. These global customers require consistent product and services support globally. That will not only impact on China market, but may also affect their decisions in global headquarters.

Finally, during the transition period, how will the new H3C maintain its original channels and customers, while capitalising on the new competitive landscape?

Thomas Zhou, senior research manager of IDC enterprise system research, says: “Within the context of the IT self-controllable trend, domestic Chinese server & storage vendors increased rapidly, with HP and other MNC’s facing major challenges. Once this deal goes through, the new H3C will become a state owned shareholding company. It will significantly change the competition landscape of the China server and storage market. If the new H3C can effectively manage the transition, they will emerge as one of most competitive vendors in the enterprise business market in China.”

With the fast growth of China’s economy and the penetration of 3rd platform technologies (such as cloud, big data/analytics, social and mobility), IDC expects that Chinese server, storage and networking equipment markets will maintain a strong growth rate for the next few years. Meanwhile, local vendors and MNCs will build closer collaborative relationship as the IT localisation trend.

According to Kitty Fok, MD of IDC China: “Unis’ acquisition of H3C and HP Enterprise Business is profoundly significant for China’s IT market. The developing model of co-operation between an MNC and a local vendor will lead to greater competition in the future.

“If the new H3C effectively manages the transition to leverage the strengths of each company, they will be poised to become a new giant to challenge the leading local vendors such as Lenovo and Huawei.”