Analysts believe that this will help remove Honor from the US sanctions
The Chinese company Huawei is negotiating the sale of its division for the production of budget smartphones, laptops, smart TVs, and other equipment under the Honor brand. The buyer will be a consortium of investors led by smartphone distributor Digital China Group and the government of Shenzhen, where Huawei is headquartered. The deal, which is estimated at 100 billion yuan ($ 15.2 billion), was reported on November 10 by Reuters, citing sources familiar with the negotiations. According to them, Huawei could announce the deal as early as November 15th.
Digital China is the main distributor of Honor products in China, as well as Huawei’s partner in other areas such as cloud services. In addition to her, at least three investment firms, backed by the authorities of Shenzhen (Guangdong province), will take part in the deal. The deal, which is 100% cash, includes virtually all of the division’s assets: the brand itself, R&D, and supply chain management. Digital China is going to use bank loans to pay for Honor.
In April 2020, Huawei separated the production of equipment under the Honor brand into a separate company – Honor Terminal. According to sources from Reuters, Digital China will receive about 15% of the shares in this company, and three unnamed investment firms – 10-15% each. After the completion of the deal, Honor Terminal plans to retain most of the management and front-line employees, which currently number over 7,000. The company also intends to conduct an initial public offering on the stock exchange within three years.
As one of the sources highlighted, the deal suggests that Huawei’s leadership does not expect rapid changes in relations between Washington and Beijing after the change of the US president and his administration. As part of the trade war between the countries, the United States imposed sanctions on Huawei last year over suspicions of transferring data to the Chinese authorities, which prevents the company from purchasing chips in the production of which US patents or technologies are used. Huawei, which ranks 2nd in the world in the production of smartphones after South Korean Samsung, denied the accusations, but now has to focus on the release of expensive models of smartphones and the b2b sector.
Analysts consider the deal to be a radical step from Huawei but note that it will allow Honor to get out of the US sanctions. “Digital China is the main distributor of Honor products in China, and this should help the brand maintain its market in that country. However, overseas sales could be hurt as it is not yet clear how the US will react to the deal and what Honor will do in the absence of strong marketing support from Huawei, “Counterpoint research director Tom Kahn told Reuters.
Huawei launched production under the Honor brand in 2013. In China, the brand’s products are sold through select sites and independent retailers and compete with Xiaomi, Oppo, and Vivo products. According to research firm Canalys, Honor accounted for 26% of the 51.7 million smartphones shipped by Huawei in the third quarter of 2020. Reuters cites Honor’s 2019 financial data after an audit: profit of 6 billion yuan ($ 913 million) on revenues of 90 billion yuan ($ 13.7 billion).
