Huawei reportedly intends to sell the Honor mobile unit to a consortium consisting of long-time supplier Digital China and the Shenzhen government, in a deal valued at 100 billion yuan (roughly £11.4bn/ $15.2bn).
Talk of the sale emerged last month. The transaction is believed to include almost all components of Honor, including its brand and R&D. According to Reuters, few layoffs are expected, and the newly independent business is expected to IPO within three years.
Honor is a semi-independent sub-brand of Huawei which predominantly produces budget phones targeted at younger audiences. Initially created to distinguish the firm’s cheaper phones from their medium- and higher-margin devices, it has since diverged from its parent company, shipping phones with a fork of EMUI called Magic UI, and shifting focus to IoT and home products, like smart TVs.
Despite that ostensible separation from its parent, Honor did not escape the imposition of US sanctions, and remains unable to license Google Mobile Services. This has proved disastrous to Honor’s business.
According to Ben Stanton, senior analyst at Canalys, Honor shipped just 1.9 million units in Europe during Q3 2020 — mostly to Russia, where Huawei has expended efforts to court the local market.
“In Western Europe, the Honor brand has receded over the past year, as Huawei has prioritized building out its HMS platform on Huawei-branded devices,” Stanton told El Reg.
Honor’s smartphones accounted for 26 per cent of the 51.7 million handsets shipped by Huawei, said Canalys. As these are cheaper devices, actual margins are smaller — which becomes problematic when unable to sell at volume. Honor accounted for 55 per cent of all Huawei device sales in Q2 2018 but fast forward two years and that figure had shrunk to 26 per cent, as the impact of US sanctions started to bite both brands.
By divesting Honor, Huawei gets a welcome influx of cash — which feels especially necessary, given the sustained and devastating attacks on Huawei’s mobile and carrier business. Despite an imminent change of regime in Washington, Huawei’s woes show no sign of ending, added Stanton.
“Huawei is obviously still subject to its placement on the US entity list. Even under a Joe Biden administration, Huawei is not confident of being delisted itself, but it is betting on Biden not going out of his way to target Honor,” he said. This echoes previous sentiments from Huawei’s leadership, with former Huawei UK board member Sir Kenneth Olisa noting a “bipartisan dislike” of China.
“I am also hearing that it is communicating to supply chain partners that it expects to place aggressive orders in 2021, and expects to be able to use Google Mobile Services for the foreseeable,” noted Stanton.
The Register contacted Honor and Huawei for comment. Both declined to offer a formal comment, although sources reckon Huawei will make public the agreement next week. ®