Caixin
Nov 17, 2020 08:43 PM
BUSINESS & TECH

Huawei’s Honor Bound for Sell-Off to State-Backed Consortium

An Honor retail store in Hefei, East China’s Anhui province, on Tuesday. Photo: Yingfute Experience Store in Hefei
An Honor retail store in Hefei, East China’s Anhui province, on Tuesday. Photo: Yingfute Experience Store in Hefei

A consortium of over 30 agents and retailers will buy budget smartphone brand Honor from sanctioned Chinese tech giant Huawei Technologies Co. Ltd. for an undisclosed amount in what they described as an attempt to “save Honor’s industry chain.”

The telecommunications equipment giant has signed an agreement to sell all of Honor’s business assets to a new company called Shenzhen Zhixin New Information Technology Co. Ltd. The company was founded in September by the consortium partners and companies affiliated with Huawei’s hometown government of Shenzhen, according to the purchasing group’s joint statement issued Tuesday.

The deal follows the “persistent unavailability of technical elements needed for smartphone business” and “tremendous pressure on (its) consumer businesses,” according to Huawei (link in Chinese), adding that it will not hold any stake in the new Honor company and will not participate in its operation management and decision-making activities.

Honor chart

Honor’s current management will continue to run the firm after it is sold, Caixin reported earlier this month, citing sources in some of the companies, reflecting the joint statement that “the change in ownership will not impact Honor’s development direction or the stability of its executive and talent teams.”

The price of the deal has not been disclosed.

The divestment plan comes after U.S. sanctions effectively cut off the chip supplies of Huawei, the world’s second largest smartphone vendor — behind Samsung Electronics Co. Ltd. — including the self-developed Kirin chipsets it makes with a third-party manufacturer and which are vital to its smartphones’ competitive edge.

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Huawei launched Honor in 2013 as a brand targeting the low-end and mid-range smartphone market, while its main Huawei series remained focused on flagship phones meant to compete with high-end rivals like Apple Inc. and Samsung.

In 2019, Honor-branded smartphone sales accounted for 26.4% of Huawei’s total phone shipments but faced stiff competition from hometown rivals, including Vivo and Oppo, which have taken over some of its market share since the second quarter of last year, according to data from research institute IDC.

The U.S. rules, which were ratcheted up over the summer, require chipmakers to obtain a U.S. government license before selling products made using American technology to Huawei. The company is incapable of manufacturing its own chips, and had used contract chipmakers in Taiwan to manufacture its chip designs, but those contractors use American technology.

The Honor smartphones use a tweaked version of Huawei’s premium chips, a 5G executive at the parent company told Caixin. “There is no way to make profit when there are not enough chips to support the production of both (high-end Huawei and low-end Honor) lines,” so it makes sense to sell off the low-end brand, he said.

The political risk of Honor being targeted by U.S. sanctions after departure from its founding company is still an uncertainty, according to IDC analyst Will Wong.

The sale will bring cash flow to Huawei and allows the possibility of buying Honor back in the future, he said. “It will be easier for them to buy it back from this consortium (which includes their existing Chinese partners), when compared with selling it to (potential competitors like) smartphone vendors or electronics-makers.”

E-commerce retailer Suning.com Co. Ltd. is listed among the group of buyers, which also includes several state-owned investment firms and government-affiliated entities, like Shenzhen Expressway Co. Ltd. and Shenzhen Energy Group Co. Ltd.

Contact reporter Anniek Bao (yunxinbao@caixin.com)

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