...we take a very literal approach when it comes to established policies. I think China is grasping what it means to be a global economic power and is addressing these issues. We would like to be a force that takes this to a positive outcome. So far we are not facing an issue, partly because we are not in the content — we are in the plumbing. So it doesn't come to use. It is the Googles who have to face it.
But I can tell you that, should this come up and be an ethical issue, we are very keen on respect of individuals' privacy [and] human rights and we shall make the right call.
Surely it is already an issue as we see the government wants to control the pipeline?
All I am trying to say is that, perhaps because we are selling to enterprises and not to carriers, we don't face that dilemma where the carriers are telling us to control something. I don't know why we are not seen as a carrier provider, but they are Chinese companies.
So what about the issue of intellectual property? You are quite a big stakeholder and IP must be a substantial part of your assets?
Absolutely. It is on the front page of any presentation from 3Com and I can tell you that not one quarter goes by without us being approached to sell a patent or to have the opportunity to get royalties from a patent. We have one of the richest patent portfolios in the industry and we are increasing it at a very steady pace. Particularly in China. We are very aggressively filing and publishing patents in China. TippingPoint [a company owned by 3Com] is also responsible for the rest of our patents. In the last quarter we had $4m from royalties in patents that we have grown.
But what about respect for intellectual property in China? Is that an issue?
Historically there have been various concerns about that and, while one has to always be cautious and paranoid, China is evolving from being a user and receiver of intellectual property to a producer of intellectual property.
The attitude at government level and enterprise level is shifting from one of lax attitude and less reaction to IP protection to being one of [strength] in enforcing it. When Chinese companies have their own IP, they have something to lose. We can see the self-interest of the Chinese and the Chinese government to respect IP.
When we started the joint venture, we had 1.7 million lines of code. Today we have over 7.5 million. 80 percent is owned by H3C. This is owned by 4,900 Chinese employees, so they want to protect it the same way we want to see any idea protected. So, for example, we are very close to passing Sarbanes-Oxley, in China, in a matter of a few weeks.
How will you develop the rest of the business?
The stated strategy to grow outside of China is to leverage the enterprise business of 3Com, which has always been there, outside of China, but did not have the rich product line that H3C has provided. We have begun by integrating our sales force in the Asia/Pacific Rim outside of China. We are soon to complete the integration in America and soon all the countries will follow. This will achieve phenomenal cost reduction.
People should think of us as an enterprise networking player offering the richest set of solutions but also with a leading-edge perspective on how networks are evolving in the enterprise.