Huawei Technologies could consider selling its Honor smartphone business as a means to survive US trade sanctions, according to TF International Securities analyst Kuo Ming-chi, but other industry analysts are sceptical about the Chinese telecommunications giant pursuing such a strategy.
“If Honor is independent from Huawei, its sourcing will no longer be subject to the US ban on Huawei, which will help Honor’s smartphone business and the suppliers,” said Kuo, who has become famous for his predictions about Apple’s product development, in a report published on Wednesday.
He indicated that such a move could enable budget smartphone vendor Honor, part of the Huawei consumer business group’s dual-brand strategy, to pursue development of higher end models and better compete against Xiaomi Corp, which offers handsets in a similar price range.
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That development “would be a win-win for the Honor brand, the suppliers and China’s electronics industry”, he said.
Founded in 2013, Honor has lived up to its name as the unsung hero that has helped Huawei overtake Apple and Samsung Electronics in sales at home and abroad by offering trendy smartphones, with an average selling price of between US$150 to US$220, to young consumers.
A spokesman for Huawei did not immediately respond to a request for comment on Thursday.
Shenzhen-based Huawei, which surpassed Samsung for the first time in global smartphone shipments in the second quarter, has been one of the major casualties of rising US-China tensions. The company, which was added to the US government’s trade blacklist in May last year, is now struggling with tighter restrictions imposed this year, covering access to chips developed or produced using US technology, from anywhere.
Richard Yu Chengdong, chief executive of Huawei’s consumer business group, said in August that the US sanctions will make it difficult for the company to ship smartphones with its high-end Kirin chips after this year. The consumer business group, Huawei’s biggest operating segment, generated US$36.5 billion in revenue in the first half of this year.
Still, any move by Huawei to sell off Honor is not expected to directly benefit the company amid ongoing US-China trade tensions.
“Even if Honor becomes a separate business, that doesn‘t guarantee that it won’t get caught up in the trade war later,” said Bryan Ma, vice-president of client devices research at IDC.
Considering how the US government continues to paint Huawei and its products as a security risk, there could be no takers for Honor.
No Chinese company would buy Honor, according to Linda Sui, director of smartphone research at Strategy Analytics. “It’s a hot potato,” she said. “It will create big trouble for whoever takes it over.”
Honor at present is a major asset for Huawei. By adopting a mainly internet-based distribution model, Honor has generated revenue of more than US$10 billion in the past five years, according to the company.
IDC has estimated that Honor accounted for 28 per cent of Huawei’s total smartphone shipments in the first half of this year, while Strategy Analytics indicated that Honor’s contribution was at 38 per cent in the same period.
“Honor is a very well-established brand in the low- to mid-range segment, and has been key for Huawei to make inroads into many developing markets around the world,” said Fitch Solutions analyst Kenny Liew, who does not see Huawei divesting that brand. “At the same time, Honor continues to rely heavily on Huawei’s distribution channels, expertise in chip design and manufacturing capabilities to produce and sell its products.”
Instead of selling Honor, Huawei has other options to consider.
Sui from Strategy Analytics said the most possible solution for Huawei would be to ramp up its efforts on personal computers, tablets and wearable devices.
While a change in US policy may become possible under a new administration in Washington, Sui said Huawei still must operate under the current trade restrictions, which have put in question the survival of its smartphone business.
This article Should Huawei consider selling smartphone brand Honor to survive US sanctions? first appeared on South China Morning Post