INSIGHT: Why HP’s China deal threatens Huawei/Lenovo dominance
- 22 May, 2015 03:44
Earlier this week, HP and China Unis officially announced Unis Company’s acquisition of 51 per cent share of H3C Technologies and HP enterprise business in China (including server, storage and technical services).
As reported by Reseller News, the tech giants also announced that they will work together to build a new H3C with the deal set to have 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 which then acquired H3C’s share from Huawei as HP acquired 3Com, meaning 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 no.1 position in the switch market in China (30.9 percent share), no.1 in the enterprise WLAN market and #3 in the router market.
“In the past, the R&D, manufacturing and marketing of H3C are in China, but they had a foreign parent company,” says Steven Hu, Research Manager, IDC networking research.
“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.”
Hu says 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 #3 server vendor in China with 15.0 percent market share (including both x86 and non-x86 server), and the no.4 storage vendor with 7.4 percent market share.
For the new H3C, the change of shareholding will bring long term benefit. When they becomes a state own holding company, they will benefit from the IT localisation trend. Still, there are many questions that the new H3C must answer.
First, with HP as an investor but not a holder of this new group, how can they strike a balance between inheriting HP’s product design features and incorporating Chinese characteristics into future product R&D?
Second, 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 their original channels and customers, while capitalising on the new competitive landscape?
“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,” adds Thomas Zhou, Senior Research Manager, IDC enterprise system research.
“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 & 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), China server, storage and networking equipment markets will maintain a strong growth rate for the next few years.
Meanwhile, local vendors and MNC’s will build closer collaborative relationship as the IT localisation trend.
“Unis acquisition of H3C and HP Enterprise Business is profoundly significant for China’s IT market,” adds Kitty Fok, Managing Director, IDC China.
“The developing model of cooperation between MNC and 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.”