Huawei is selling its budget smartphone unit Honor to a government-backed consortium to ensure the brand’s survival after the Trump administration blocked the Chinese group’s access to global technology suppliers.
The buyer group, which includes more than 30 dealers and investment firms as well as the Shenzhen city government, has set up a new company in which Huawei will not be involved or involved. No price was given for the transaction.
The sale comes as the US puts unprecedented pressure on both Huawei’s global telecom kits business and its consumer smartphone business, which accounts for more than half of its sales. Washington claims Huawei is a national security threat, which the Chinese group denies.
Huawei’s revenue growth slowed significantly in the third quarter. That was hurt by the U.S. sanctions that went into effect in September, which largely cut the company off from smartphone chip providers. In China, smartphone sales fell for the first time in the three-month period.
I wouldn’t expect honor to be added to the entity list, especially under a new Biden administration
The domestic smartphone market had helped prop up Huawei’s business as the US sanctions first began in 2019. The removal of must-have American apps like Google and Facebook from its devices resulted in crater sales overseas.
Huawei said its consumer business has come under “tremendous pressure” recently due to the “persistent unavailability of technical elements” required for its cell phone business.
The sale of the Honor brand was aimed at saving the supply chain and ensuring the “survival” of the companies involved, Huawei said. The brand, founded in 2013, delivers 70 million mobile phones annually. It competes with Xiaomi, Oppo and Vivo at the lower end of the handset market with prices between 899 Rmb (137 USD) and 4,000 Rmb. The top seller model Honor 30 costs 2,699 Rmb.
Some of Honor’s smartphone models included the Kirin chipset designed by Huawei, which it has not been able to manufacture since September.
“Honor’s shipments and market shares are high, but the profit and average price are lower than [Huawei’s] Main Brand, ”said Gartner’s CK Lu, noting that separating Huawei from Huawei’s supply chains could put pressure on costs.
Lawyers said that under its new owner, Honor could avoid US sanctions and allow it to buy chips with American technology without a license.
“I wouldn’t expect Honor to be added to the entity list, especially under a new Biden administration that is likely to review aspects of export controls related to Huawei’s businesses and narrow the scope of controls,” said Paul Triolo, a China-based company Tech expert at Eurasia Group.
However, an official from Shenzhen expressed concern that the US might not judge the government’s huge role in the new venture. He said Honor would pursue a public listing after the deal was closed.
The new company’s shareholders, Shenzhen Zhixin New Information Technology, include a state-owned smart city development company in Shenzhen and electronics retailers Suning and Sundan.
Although Washington disrupted Huawei’s business, it created a lifeline by allowing several chip companies to continue supplying non-5G components.
Huawei is also working on a plan to manufacture its own chips in Shanghai at a new facility that does not use US technology.
Additional reporting from Nian Liu in Beijing.