H-P's China sale should 'unlock organic growth,' Whitman says

SAN FRANCISCO — Hewlett-Packard ushered in sweeping changes to its China operations Thursday before quarterly financial results that were mostly in line with forecasts.

The company said it was selling a majority stake in its data-networking operation in China for $2.3 billion to Tsinghua University.

It is the first major U.S. tech company to pass control to local owners since the government stepped up restrictions on foreign firms. China has encouraged the use of local suppliers. H-P will continue to operate in China.

"We think this will unlock organic growth potential in China," HP CEO Meg Whitman told USA TODAY in a phone interview.

Tsinghua Holdings, an arm of the prestigious state-owned Tsinghua University, will buy a 51% stake in a new business called H3C.

HP's networking units — especially those in China — had a "rougher than anticipated" quarter, Whitman told analysts in February. The situation should improve with HP's move in China and the closure of its $2.7 billion acquisition of Aruba Networks in March, Whitman said.

The China accord was announced several hours before H-P reported second-quarter earnings. H-P posted GAAP earnings of 55 cents per share, missing its guidance of 57 cents to 61 cents. In the same quarter last year, H-P's GAAP earnings were 66 cents.

The company reported non-GAAP earnings of 87 cents per share vs. 86 cents forecast by analysts polled by Thomson, and revenue of $25.5 billion. Sales were slightly under Wall Street expectations.

The news sent H-P shares up 1%, to $34.24, in extended trading.

The currency exchange rate, buoyed by a strong U.S. dollar, continues to cloud H-P's results. The Silicon Valley-based company does roughly two-thirds of its business in international markets, which hurts it when it is paid in non-U.S. currencies such as the euro and the Japanese yen.

Whitman said H-P will complete its split into two companies — PC and printers, and technical services — by the end of the year. Chief Financial Officer Cathie Lesjak will be CFO of the PC and printer business; Tim Stonesifer will be CFO of the enterprise company.