Huawei Technologies Co., a Chinese maker of telephone and computer-networking equipment, agreed to pay $530 million for Symantec Corp. (SYMC)’s 49 percent stake in their money-losing joint venture.
The deal, announced yesterday, will give Huawei full ownership of Huawei Symantec Technologies Co., a Hong Kong-based venture formed in 2008 to sell security and storage products. While the change of control wasn’t a surprise to analysts, it may draw scrutiny from U.S. officials because of the security implications.
Symantec, the largest maker of computer-security software, had an agreement with Huawei stipulating that one of the companies eventually take control of the three-year-old venture, said Walter Pritchard, an analyst at Citigroup Inc. The venture is a better fit with Huawei since it’s staffed with former Huawei executives, he said.
“It was either going to go to one or the other,” the San Francisco-based analyst said. “It’s more of a Huawei business than a Symantec business.”
The purchase is expected to be completed in the first quarter, the companies said yesterday in a joint statement.
Huawei Symantec has lost money in each of its first three years and is expected to keep doing so in coming years, Pritchard said. It will have sales of $629 million and a loss of $82 million this year, he estimated in a note this month. The joint venture has its main operations in Chengdu, China, and both Symantec and Huawei have licensed technology to it.
The deal may renew U.S. concerns about Huawei’s ownership and objectives, said two intelligence officials, who asked not to be identified because intelligence matters are classified.
Some Huawei executives have close ties and what appears to be regular communication with officials of the People’s Liberation Army and the Ministry of State Security in China, the intelligence officials said.
The Committee on Foreign Investment in the United States forced the company in February to unwind its purchase of patents from Santa Clara, California-based 3Leaf Systems Inc., after lawmakers said the acquisition could pose “a serious risk” to U.S. computer networks.
‘No Military Stake’
Ross Gan, a Huawei spokesman, said the company “doesn’t have any ties to the Chinese government or the military.”
“Huawei is a private, employee-owned company that makes decisions on a commercial basis,” he said today in an e-mail. “No military, third party or government organization has any stake in Huawei.”
Assuming full ownership of the security venture could leave Huawei with less access to Symantec’s research and new products. Even so, U.S. officials may wonder whether entering a joint venture with an American partner and then buying them out is a new tactic to avoid scrutiny, the people said.
Nicole Kenyon, a spokeswoman for Mountain View, California- based Symantec, didn’t have an immediate comment on the security concerns. She said the company is selling its stake because it makes sense for the venture to have one owner. Other possible scenarios, such as an initial public offering for the business, were too risky, she said.
‘Not About the U.S.’
Gan said the deal “is not about the U.S.” The move is a natural extension of the company’s strategy, communicated earlier this year, he said.
“The transaction involves a non-U.S. headquartered joint venture in which Huawei is already the majority owner with a 51 percent share,” Gan said in a separate e-mail. “Huawei will brief relevant government stakeholders as part of the routine regulatory approval process for such transactions based on the local laws and regulations that apply, such as submitting declarations of antitrust compliance in Brazil.”
During a conference call with analysts, Symantec Chief Executive Officer Enrique Salem said the company would have had to make additional investments in corporate software to maintain the partnership.
“We were maybe at different ends of specific issues,” he said. “It was going to be much easier to have one owner.”
Symantec is ending the joint venture with “good return on our investment, increased penetration into China and a growing appliance business,” Salem said in the statement. Symantec’s sales in China have increased 46 percent in the past three fiscal years, he said.
Symantec shares declined 1.1 percent to $16.94 at the close in New York. The stock has gained 1.2 percent this year.
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