Huawei spin-off Honor working with Qualcomm on 5G smartphones, report says

Celia Chen
·4-min read

Honor, the budget smartphone unit sold by Huawei Technologies Co in November as part of its response to US blacklisting, is working with American chip supplier Qualcomm on 5G devices, according to Chinese media.

A former consumer brand run by Huawei, Honor is expected to launch smartphones with Qualcomm 5G chipsets in May or June this year, local media Caixin reported on Wednesday.

The agreement with Qualcomm was first reported by the state-backed China Securities Journal on Tuesday, citing a supplier to Honor. It said Honor 5G smartphones based on Qualcomm chipsets were already “in the research and development (R&D) process.”

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If confirmed, it would mean that Honor – now officially owned by a consortium of 30 dealers led by a company backed by the Shenzhen government – has been able to avoid US sanctions by separating itself from Huawei, whose access to key software, hardware and tech partners has been blocked by Washington.

Honor declined to comment on the reported 5G partnership while Qualcomm did not immediately reply to requests sent to its Beijing and US offices on Thursday.

Huawei’s former budget smartphone unit has big plans for 2021

Although Honor is no longer part of Huawei, analysts warned the company might still face uncertainties in getting approval to purchase US chips.

“When the sanctions were originally imposed, many suppliers to Huawei had the difficult task of ascertaining whether the entity they supply to was covered by sanctions,” said Paul Haswell, a partner at international law firm Pinsent Masons.

“Honor is not [covered] so for now Qualcomm is free to work with Honor. This can of course change if the sanctions are extended to Honor,” he said.

In a widely circulated speech to Honor employees delivered after the sale, Huawei founder and CEO Ren Zhengfei said the new Honor needed to cut all ties with its former parent and become a powerful competitor. “After the sale, Honor must quickly resume production under the new leadership to solve problems with upstream and downstream partners,” Ren said.

In November, Qualcomm said it had begun talks with Honor executives over possible cooperation. Separately, Taiwan-based chip suppliers Mediatek said it is studying whether it can supply Honor and still comply with US rules.

Huawei looks to cloud services as US sanctions hit smartphone business

Will Wong, a Singapore-based analyst at market research firm IDC, said the risk factor for Honor could be reduced after President-elect Joe Biden is sworn into office later this month.

“The focus for the new president could be a little different. There may be fewer risks for Honor to work with its US supply chain,” he said.

Even if the company can avoid US sanctions under the incoming Biden administration, it will nonetheless develop in a different direction than Huawei, according to analysts. Huawei positioned itself as a premium brand for those concerned with style and elegance while Honor targets younger consumers who are more interested in fashion and entertainment.

“Cloud, AI, operating systems and semiconductors, instead of consumer hardware, will become the development priorities for Huawei in the future. Thus, the core businesses of Huawei and Honor will be different,” said Flora Tang, a Hong Kong-based analyst at Counterpoint Research.

Since the main purpose of spinning off its budget smartphone business was to get Honor off the US export blacklist, a successful outcome might even see Huawei sell some of its other business units, according to Mark Natkin, managing director of Marbridge Consulting in Beijing.

These sales could include an option for Huawei to repurchase the unit at a future date, he added. “At the moment, Huawei simply needs to buy time until it can find or develop a chip-supply solution that doesn’t rely on US technology. The sale of its Honor business – possibly only a temporary arrangement – is one creative approach to that end,” Natkin said.

However, the spin-off strategy is not necessarily the answer for all Chinese companies under US restrictions, say some analysts.

“One shoe doesn’t fit all so it depends on different business scenarios,” said Tang. “The US is also sanctioning ByteDance and Chinese telecom operators including China Mobile, China Unicom, China Telecom, but it is unlikely Chinese telecom operators would replicate the Huawei and Honor strategy,” she said.

However, in the case of ByteDance, it did comply with a Trump executive order to divest its US TikTok video platform, with Oracle and Walmart as US partners, but that deal is in limbo amid legal challenges and the transition to the Biden Administration.

Haswell said a spin-off like Honor would work if an entity wants to prevent its subsidiary being impacted by sanctions, “but for it to be effective the business would have to actually relinquish control of the spun off business; it would not be effective as a symbolic gesture.”

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