Chinese server maker H3C cuts pay due to US tech sanctions

H3C Technologies, a Chinese server maker, has decided to cut the pay of its mid-to-senior-level employees as the impact of the latest US tech sanctions spreads from cloud service providers to the server market.

H3C’s CEO and president Yu Yingtao said in an internal memo last Thursday that employees and managers rated grade 17 and above would face a 20 per cent pay cut, while employees and managers at grade 16 and all grade 15 managers would face a 10 per cent cut, Chinese financial news media Caixin reported on Friday citing sources.

Yu said the salary adjustments, which will be in effect from December 1 to the end of next year, could be extended beyond the planned period, or terminated earlier, depending on the company’s operating conditions. H3C, which purchases chips from suppliers including Nvidia to make servers, declined to comment on Sunday when reached by the South China Morning Post.

The planned pay cuts were confirmed by an H3C employee on Sunday, who requested anonymity as the information was private. The source added that grade 17 was deemed a senior position and would only impact a small number of employees. H3C has a workforce of more than 19,000.

The internal employee grading system at H3C, similar to that of many Chinese tech companies, starts from eight and tops out at 20.

The move at China’s second-largest server maker comes after Chinese public cloud services providers, including Post owner Alibaba Group Holding and Tencent Holdings, warned investors of the impact of stepped up US export controls on their cloud computing businesses, which rely on certain advanced semiconductors that are now restricted from being sold to China.

The latest sanctions, issued in October, added to the woes of Chinese companies including H3C, which are keen to upgrade their computing infrastructure to ride the wave of artificial intelligence large language model development in China.

Founded in 2003 as a joint venture between Chinese telecoms giant Huawei Technologies and US firm 3Com, H3C has seen its ownership change hands several times in recent years. Unisplendour, a listed arm of Tsinghua Unigroup, currently owns a 51 per cent stake in the company.

In May, Unisplendour said it would buy the remaining 49 per cent stake from Hewlett Packard Enterprise for US$3.5 billion, with funding partially raised through a private placement with 35 buyers, according to Unisplendour’s third-quarter financial report. In September, the buyout plan was put on hold after Unisplendour decided to complete the private placement first, according to Chinese media reports.

H3C ranked No 2 in China’s server market during the first half of this year, with a 16 per cent market share, according to market research firm International Data Corp.

In the first nine months, Unisplendour’s revenue grew 2.46 per cent year on year to 55.2 billion yuan (US$7.7 billion). However, third-quarter revenue dropped 1.63 per cent year on year to 19.2 billion yuan, while net profits fell 23.7 per cent to 519 million yuan, according to its financial report.

The same report revealed that H3C’s revenue in the first three quarters grew 2.32 per cent year on year to 37.6 billion yuan. Revenue from domestic telecom service providers reached 7.64 billion yuan, up 20.9 per cent, while international business revenue was 1.63 billion yuan, an increase of 13.72 per cent. South China Morning Post