3Com paid US$882 million to buy out the H3C. What is the core value there?
The core expertise we greatly benefit from is the pedigree of the people coming from Huawei. Huawei built carrier-grade routers and switches. When we started moving [back] into the enterprise [with the joint venture], what you started seeing was very high-quality, high-end products that were built for the carrier market. I can't think of any company in the U.S. that has approached the enterprise this way. Clearly, companies that have been in routing, like Cisco, started early on with large systems for carriers, but then honed their skills on enterprise first.
The second advantage of owning the joint-venture team is that, by definition of being in China, you have a five-to-one, or six-to-one advantage in terms of labor costs. Some of the people may not be as experienced as the U.S. teams. But that gap is eroding. China has proven to have a great surplus of engineering talent ... [Also], this is a culture that is determined to improve its standard of living. The ambition and focus is leading a lot of those people towards very long hours. They spend sometimes one Saturday a month -- the team at H3C -- at the facility, ensuring that the month closes effectively. [3Com has] a lot of great talent here in the U.S. and Europe. We have very dedicated people. But the Chinese team is taking it one notch above that.
Some say there is still a perception in the U.S. that network products from low-cost manufactures in Asia are inferior to gear designed by vendors such as Cisco, Juniper or Nortel. I assume you disagree?
Here's an anecdote: Every time I look at China, I stop and visit customers across the world. I stopped in France two months ago and met with customers and partners. One partner, who distributed both 3Com and our competitor's products, was very positive about the quality coming from the H3C. From the standpoint of the number of bugs he saw from H3C products vs. competitors', on a weekly basis, H3C had the lowest rate. That speaks to the dedication and quality of what they do.
In buying out the H3C, does 3Com own the router and switch code, or is that licensed from Huawei?
The question comes up very often. The code base that was started and used at the inception of the joint venture has now grown by five-fold. Five-sixths of that is homegrown, owed by H3C, and now owned by 3Com. We have a full, perpetual license to the original piece of code [developed originally by Huawei]. And the 200 to 300 engineers who started at the H3C now have mushroomed close to 3,000. These are people hired by the H3C, who have an H3C culture and mentality, and will now be part of 3Com.
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