Huawei sells Honor brand in a bid to save Honor's industry chain

Huawei sells Honor brand in a bid to save Honor's industry chain

The deal will create an entirely new company for Honor, Shenzhen Zhixin New Information Technology, with Huawei having no shares or ownership.

Chinese tech giant Huawei is selling its budget-price Honor smartphone brand in an effort to rescue the struggling business from damaging US sanctions imposed on its parent company.

In Huawei's statement, the company said its consumer business has been under "tremendous pressure" due to the "persistent unavailability of technical elements" for its phone business.

"Honor did visit many suppliers recently, and ask for support from next year, but we are still evaluating the [planned sale of Honor], as we have to consult USA lawyers to see if it would fully comply with the export control regulations", another person with knowledge of the matter told Nikkei Asia.

It is a company formed by a technology enterprise owned by the government of the southern city of Shenzhen, where Huawei is headquartered, with a group of Honor retailers.

As you can see from the newspaper image there, the new company formation by the agents and dealers were a "market-driven investment made to save HONOR's industry chain".

Previously, we wrote a piece of news that Huawei could have sold off their HONOR brand and the announcement could be made on 20 November 2020.

Huawei, China's first global tech brand and the biggest maker of switching equipment used by phone and internet companies, is at the center of U.S. The feud has spread to include the popular Chinese-owned video app TikTok and messaging service WeChat. In addition, there's also no word if the new US President Joe Biden would lift the ban on Huawei or not.

But getting to that stage takes time, and in the interim there are competitors lining up to take Huawei's place on the global smartphone stage.

The sale is "definitely a sign of weakness", said Nicole Peng of Canalys.

Huawei's smartphone shipments plummeted 22% in the September quarter because of the USA sanctions, according to research firm IDC.

Huawei gave no indication of the sale price.

Other Chinese smartphone brands such as Xiaomi, Oppo and Vivo operate without such restrictions.

"This sale will help Honor's channel sellers and suppliers make it through this hard time", the Chinese telecommunications giant said in a statement.

US security complaints focus on Huawei's network gear and leading role in next-generation telecom technology.

This year, the USA barred manufacturers from using American technology to produce chips for Huawei, claiming that the company might be facilitating Chinese spying, something that the tech giant has repeatedly denied. It also believes that rapid and healthy development within the ICT industry will rely on open collaboration and mutual trust across the global industry, so it will continue working closely with its global partners and using its innovative ICT technologies to create greater value for customers despite the complex situation it is now facing. Further, the Trump government is lobbying European and other allies to exclude Huawei and other Chinese suppliers as they upgrade networks.

Huawei executive Meng Wanzhou has meanwhile suffered a series of legal setbacks in her fight against extradition from Canada to the United States.

The US imposed sanctions in the spring of 2019, blocking Huawei's access to most US processor chips and other technology. Those were tightened in May when the White House barred manufacturers worldwide from using USA technology to produce chips for Huawei, including those designed by its own engineers.

Sources with knowledge of the matter say US government restrictions have forced the world's second-biggest smartphone maker - after South Korea's Samsung Electronics Co Ltd - to focus on high-end handsets and corporate-oriented business.

Neither Huawei nor the buyers disclosed the details of the deal, but about 7,000 employees will be moved from Honor to the new company, according to a person familiar with the matter. Honor shipped almost 70 million smartphones in 2019, with China its main market.

Huawei sold 51.9 million handsets in the third quarter, according to industry trackers IDC. Sales in China rose 8% but shipments overseas fell 27%. That was down from 13.1% growth in the first half, but the company said it still was profitable.

Sales in China rose 8% but shipments overseas fell 27%, and Huawei's smartphone sales outside China have suffered because the company is barred from preinstalling Google services. This is so that the transaction can proceed and once the purchase is completed, Huawei won't have any shares at all with HONOR. The company had said that its supply chain is being put under "intense pressure" and its production and operations face "significant challenges". It's unclear if the Honor spin-off will lead to a resumption of American chip supply to its new owners.

"It's much less likely to become a target of the US government", she said. She said Honor is less likely to prompt security concerns because it will be smaller than Huawei and have no role in next-generation infrastructure.