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HPE sees 'no indication' its tech was sold to Chinese military, seeks answers from Uncle Sam on sanctions

In the dark about how New H3C chip org ended up on USA’s naughty list

HPE has said it sees "no indication" its technology has been sold to China's military.

This comes after a company within its China-based joint-venture New H3C – which is the exclusive provider of HPE servers, storage, and associated technical services in the Middle Kingdom – was last week added to the USA's Entity List of businesses banned for supporting the modernization of the People's Liberation Army.

HPE's entanglement with H3C dates to its 2009 acquisition of network equipment maker 3Com, which in 2003 created a joint venture in China with Huawei to target the Chinese market. The name H3C reflects that parentage – the H is for Huawei and the 3C represents 3Com. By 2007, 3Com had bought out Huawei's share of the joint venture.

When HPE absorbed 3Com a couple of years later, it therefore also acquired H3C. In 2015 HPE announced plans to sell a majority interest in H3C to a majority-owned subsidiary of the state-controlled Tsinghua Unigroup.

We are reaching out to the Commerce Department to understand why this action was taken

That deal closed in 2016 and HPE said it had pocketed around $2.3bn for a 51 per cent share in the company while retaining 49 per cent ownership. H3C emerged as New H3C.

HPE remains proud of its H3C stake – occasionally popping out press releases that remind the world it is the world’s largest sever vendor by revenue when its own sales and H3C’s are combined. Analyst firm IDC counts H3C server sales alongside HPE’s when it calculates market share, a reflection of the fact that New H3C resells HPE kit.

Which brings us to last week’s revelation that one of New H3C’s businesses – New H3C Semiconductor Technologies Co. Ltd – was added to the Entity List. US organisations can only interact with listed entities after obtaining a specific license. Such licences are not easy to obtain, because inclusion on the Entity List is usually a sign the US government feels a foreign organisation represents a threat of some sort.

In the case of New H3C Semiconductor Technologies Co, Ltd, that threat was its support of the Chinese military.

HPE remains in the dark about why New H3C Semiconductor Technologies Co. Ltd, which was formed in 2019, was added to the list.

"We are reaching out to the Commerce Department to understand why this action was taken," a spokesperson told The Register. “Given the holiday weekend in the US, we have not yet had the opportunity to discuss this matter in depth with the Commerce Department.”

The HPE spokesperson said a lack of advance warning "is not uncommon for these types of regulatory actions."

"At this time, our due diligence suggests no indication that sales to the Chinese military have taken place," the spokesperson added. "We're working to understand why the Commerce Department has taken this action. We remain engaged with all relevant stakeholders to research this matter."

China responded to the expanded Entity List by labeling it an abuse of state power driven by an overstretched definition of national security, and alleging such actions are the source of problems in global supply chains.

The Register has requested updates from HPE if it learns more about why New H3C Semiconductor Technologies Co. was added to the Entity List. ®

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