In June, Huawei signed a deal to buy its smaller domestic rival Harbour Networks, founded by a number of former Huawei executives. Harbour and H3C have almost identical product portfolios.

"But H3C is crucial to 3Com," noted Gu, as the joint venture contributes greatly to 3Com's global revenues.

3Com CEO and President Edgar Masri said "H3C is a strategic asset" for the US company.

H3C contributed US$18.2 million in net profits to 3Com for the quarter ended on August 31, while 3Com's other business unit, Secure Converged Networking, posted a US$32.5 million loss on US$156 million in revenue.

H3C focuses on the enterprise network equipment market, taking a 36.5 per cent share of the Chinese market, the largest in the third quarter of this year, according to Beijing-based research house Analysys International.

But the market has become increasingly competitive, with H3C pitted against Cisco Systems, Nortel Networks and Juniper.

For Huawei, which focuses more on providing equipment to telecom operators, H3C has become a far less lucrative business, said Gu.

Huawei has been pinning its hopes on research and development activities related to 3G mobile communications technology based on the WCDMA standard, which is mainly backed by European companies such as Ericsson, Nokia and Siemens.

Rumours have been circulating that China Mobile, the nation's biggest cellular operator, could be awarded a government licence to build 3G networks based on TD-SCDMA, a home-grown Chinese 3G standard.

That could eclipse Huawei's returns on its huge investment in WCDMA.

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