Huawei’s exit from premium smartphone market would be ‘a last resort’ amid US sanctions, analysts say

Celia Chen
·4-min read

Huawei Technologies Co is not expected to divest its premium smartphone business except as “a last resort”, according to analysts, a day after the Chinese telecommunications equipment giant denied that it plans to sell its flagship P and Mate brands amid stifling US trade sanctions.

Speculation swirled on Monday about Huawei potentially selling its high-end smartphone brands, following reports from Reuters and Chinese local media QbitAI. Reuters said Huawei has been “in early-stage talks” with a consortium, led by Shanghai government-backed investment firms, for months, citing people with direct knowledge of the matter.

In response, Shenzhen-based Huawei said in a statement on Monday: “There is no merit to these rumours whatsoever ... We remain fully committed to our smartphone business, and will continue to deliver world-leading products and experiences for consumers around the world.”

Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.

The company declined further comment on Tuesday. It had already sold its budget smartphone brand, Honor, in November to Shenzhen Zhixin New Information Technology, a consortium of more than 30 agents and dealers.

“Selling another good-performing business unit will not solve issues from the US trade ban and only cause Huawei to lose a major revenue source,” said Will Wong, a Singapore-based analyst at tech research firm IDC. “That kind of deal could only be used by Huawei as a last resort, especially when the company still wants to sustain a presence in the [smartphone] market.”

Huawei Technologies Co’s P40 series 5G smartphones are on display inside the Movistar Centre, operated by Telefonica, in Barcelona, Spain, on January 21, 2021. Photo: Bloomberg
Huawei Technologies Co’s P40 series 5G smartphones are on display inside the Movistar Centre, operated by Telefonica, in Barcelona, Spain, on January 21, 2021. Photo: Bloomberg

“The Mate and P series brands, along with [chip unit] HiSilicon, represent the pillars that support Huawei’s high-end image and competitive advantage in the market,” Wong said.

Huawei’s denial of the reported sale showed that its resolve to survive the US-China tech war remains firm, despite gloomy predictions for its core smartphone and telecoms gear businesses.

In a recently published speech, Huawei founder and chief executive Ren Zhengfei said the company must decentralise its operations, simplify product lines, focus on generating profit, and maintain pay levels for three to five years to survive US trade restrictions.

The sale of Honor and its launch of a new product last week demonstrated how Huawei can manage to get around US trade restrictions, which have blocked its access to Google software and services, and chips made with American software and technology, even from companies outside the US.

Huawei expected to drop to seventh globally in smartphone production amid US sanctions

“The current US sanctions are not extended to the new Honor, so that is likely to be the same case for other consumer businesses under Huawei if they also become independent,”said Flora Tang, a Hong Kong-based analyst at Counterpoint Research.

The US trade sanctions, however, are expected to make it difficult for Huawei to produce and ship smartphones with its high-end Kirin chips after 2020, said Richard Yu Chengdong, chief executive of Huawei’s consumer business group, at a conference in August. The consumer business group is privately-held Huawei’s biggest operating segment, which generated US$36.5 billion in revenue in the first half of last year.

With tensions still high between Washington and Beijing, the major Chinese technology companies are not expected to be treated differently by the new US administration under President Joe Biden, according to Tang of Counterpoint.

“Huawei has the choice to sell its premium smartphone business, or even the entire consumer business group, if the company remains pessimistic about its development outlook under the current global geopolitical context,” she said.

Apple supplier Murata expects half-billion 5G smartphones in new year, as brands rush to replace Huawei

Still, that option would go against Huawei’s efforts to deploy its proprietary mobile operating system, Harmony OS, on 400 million devices this year. Huawei unveiled Harmony OS in August 2019, about three months after the US announced restrictions that barred the company from shipping Google apps and services on new products.

“While relinquishing control or spinning off a brand may avoid sanctions in the short term, if the US wishes to extend those sanctions then it can do so easily,” said Paul Haswell, a partner who advises technology companies at international law firm Pinsent Masons. “So we should not see the Honor story as a prediction of Huawei’s actions or the actions of other Chinese tech firms.”

More from South China Morning Post:

This article Huawei’s exit from premium smartphone market would be ‘a last resort’ amid US sanctions, analysts say first appeared on South China Morning Post

For the latest news from the South China Morning Post download our mobile app. Copyright 2021.