Important advice for anyone doing business in China (COMS 4Q05 conf call)

by: Ezra Marbach

3Com (ticker: COMS), a network equipment company reported Q4 2005 results yesterday. President and CEO Bruce Claflin discussed the company's joint venture with China's Huawei and offered some frank advice on doing business in the Middle Kingdom during 3Com's earnings results conference call:


On the pricing environment for networking products in China ("venture" refers to 3Com's JV with China's Huawei)

....it's very competitive. China has always been a price-sensitive market. I see nothing to suggest it won't continue to be that way. We can not get highly accurate data on how much share gain the venture had last year, but it's clear they had substantial share gain. We believe that much of that was at Cisco's expense. Clearly, any competitor feeling the share loss to our joint venture, in part, will respond through price. And so I do expect as that environment gets more competitive, pricing will -- will continue to be a -- a key requirement in the marketplace.

On negotiations with Huawei for a 2% stake in their JV -- that would give 3Com a controlling interest

....some of the things that we need to make sure are right before we would go ahead with the 2%....we need to make certain that the price was right....the governance was properly reflecting our majority ownership....there would be no disruption at an employee level or any possible attrition....we can get government approvals....that our books under Sarbanes-Oxley…can be extended to the joint venture, since we will now be certifying the results as a majority owner.

On the price of the 2% stake

....the agreement's call price not to exceed 28 million. But let me just say that everything in China is negotiable.

(Quotes are from the CCBN StreetEvents transcript.)


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