Before international tensions and sanctions sent Huawei into crisis, it was making significant progress not just in its core carrier networks business, but in devices. It had become the leading smartphone vendor in China, and was also gaining strong popularity for its devices in many international markets. It even temporarily overtook Apple for the global second place in the handset rankings and seemed to be snapping at Samsung’s heels.
Since then, the pressures on Huawei have weighed on its devices business. These are threefold:
- Operators steering clear of the vendor in case they get caught up in trade restrictions.
- Huawei being less able to access components as a result of US sanctions on its companies being able to supply the Chinese government without a special licence, and even on international chip providers and foundries which use US software (which nearly all of them do).
- Huawei being unable to use the official, full implementation of Android, which includes the Google services, such as Search and Play Store – thus depriving customers of the wealth of Android apps. Huawei has been developing its own operating system and apps platform, but this is unlikely to make much headway outside of Greater China and a few other Asia-Pacific markets where Google services are not entrenched.
So it seems that Huawei, in a bid to work around some of the embargoes, and to improve its own costs, is set to sell its Honor handset brand and R&D activities to a group of Chinese companies. According to Reuters reports last week, Huawei will offload the Honor range – popular with under-30s because it is packed with features but affordable – which accounted for 26% of its 51.7m cellphone shipments in its most recent quarter, which ended in September.
Huawei will continue to develop its own 5G device platform, from homegrown chips to its new operating system, but these will no longer use the Honor technology or branding. This will be acquired by a consortium including rival Chinese handset makers Xiaomi and TCL (the latter is a broad electronics group which acquired Alcatel’s cellphone business back in 2005), as well as Honor’s main distributor in China, Digital China (the country’s leading integrated IT service provider), and the government of Shenzhen.
There are varying estimates about how much the all-cash deal will add to Huawei’s coffers, with projections anywhere from $5bn to $15bn. But more importantly, it could enable Honor to keep selling round the world by removing it from the restrictions on Huawei imposed by the USA – though there are sure to be complications, especially if it remains, in the short term, reliant on any Huawei components.
The Reuters report said Honor will retain its management team and its 7,200-storng workforce under its new owners, and these are likely to take the company public within three years.
Last month, Digital China was reported to have made an offer, on its own, for Honor, but for less than $3bn. However, it will be one of the largest shareholders in the new entity, with a 15% stake, while the Shenzhen government will have up to 40%, via three investment vehicles which it backs.
“It seems to be a drastic move given the Honor brand has been highly complementary to Huawei’s smartphone portfolio,” said Nicole Peng from research firm Canalys, talking to Reuters.