Huawei said to divest Honor smartphone business for US$15 billion to Chinese consortium

Celia Chen
·3-min read

Huawei Technologies plans to divest its Honor budget smartphone business in a deal worth 100 billion yuan (US$15.1 billion) to a consortium led by information technology services firm Digital China Group, according to a Reuters report on Tuesday.

The all-cash sale will include almost all assets including brand, research and development capabilities, and supply chain management, according to the report, which cited people with knowledge of the matter.

Huawei had no comment on the reported divestment.

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In a filing to the Shenzhen stock exchange on Wednesday, Digital China said it has not reached any deal with Huawei in relation to Honor.

Speculation about such a sale intensified last month when a report by TF International Securities analyst Kuo Ming-chi said sourcing smartphone components by an independent Honor “will no longer be subject to the US ban on Huawei”.

Kuo, who became famous for his predictions about Apple’s product development, indicated that the move would enable Honor, part of the Huawei consumer business group’s dual-brand strategy, to pursue development of higher end smartphone models and better compete against Xiaomi Corp, which offers handsets in a similar price range.

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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.

“Huawei Technologies will prioritise on its [namesake] brand, not Honor, if the company can only sell a limited number of smartphones because of the lack of chip supplies,” said Canalys analyst Mo Jia. “For Honor, the worst result would be to remain part of Huawei, become marginalised and then disappear … So anything else would be better than the business just disappearing.”

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.

“The [Honor] deal will test the response of the US government on whether it will impose restrictions on the business or allow Honor to access chips and other supplies,” Canalys’ Jia said.

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The consortium in the Honor deal, which could be announced as early as Sunday, includes the Shenzhen government, according to the Reuters report. It said Digital China, which also partners Huawei in businesses such as cloud computing, will become a top-two shareholder of the sold-off entity, Honor Terminal Co, with a stake of nearly 15 per cent.

The deal will see about 8,000 Honor employees move into new offices in the Futian District of Shenzhen, from Honor’s corporate headquarters in the southern city’s Bantian Subdistrict, according to a report by local media 36Kr. It said Wan Biao, currently the chief operating officer of Huawei’s consumer business group, will join the acquired company.

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.

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