Huawei is in talks to sell its Honor smartphone business to Digital China Group for as much as ¥25 billion ($3.7 billion), Reuters reported. The Chinese telecom is considering divesting the brand to direct more focus to its eponymous handsets. As of this writing, neither company has publicly commented on the sale of the budget electronics brand.
In August, Huawei admitted it is running low on mobile device components after the U.S. government enacted new sanctions restricting its access to American made technology.
Details on Huawei’s Possible Sale of its Honor Brand
Huawei is reportedly negotiating the sale of the Honor brand and its associated research, development, and supply chain arms. Reuters’ sources indicate current talks peg the business’s value at ¥15 billion to ¥25 billion ($2.2 billion to $3.7 billion).
That said, negotiations have not been finalized, so the transaction’s total and terms could change.
Digital China, a Beijing-based electronics distributor, is in the lead to acquire Honor and its infrastructure. But two other Sino corporations, smartphone maker Xiaomi and electronics vendor TCL Technology, are also in the hunt.
Why Other Companies Want to Buy Honor
Since its founding in 2013, Honor has played a key role in Huawei’s rise to the top of the smartphone industry.
The conglomerate offers its premium core products to fans of Apple’s iPhones and Samsung’s Galaxy S series. But it created Honor to market handsets, wearables, and laptops to cost-conscious consumers. The unit’s online-centric retail model and promotional partnership with celebrities like PewDiePie have resonated with younger buyers.
In the mainland, the brand’s lower end mobiles helped Huawei compete with rivals Oppo, Vivo, and Xiaomi. The brand has also helped Huawei expand its footprint in Southeast Asia and Europe. Huawei moved 55.8 million smartphones in Q2 2020, 23 percent of which fall under the Honor umbrella.
Despite the relative popularity, the division’s products are not particularly profitable because of their affordability. Last year, Huawei made between ¥70 billion and ¥80 billion ($10.4 billion and $11.8 billion) selling Honor handsets and ¥5 billion ($743 million) in net revenue.
Nevertheless, the brand could serve as a solid earner for Digital China, Xiaomi, or TCL.
Why Huawei Should Sell Honor
While Honor helped Huawei become a major player in the global smartphone industry, the corporation should sell off the unit.
In May 2019, the U.S. Department of Commerce placed the telecom on its Entity List, which limited its access to certain American software and hardware. Last month, the agency tightened its export controls to include technology derived from U.S. innovations. Consequently, it has been unable to replenish its supply of mobile components for either its core or sub-brands.
Given its current circumstances, Huawei has little to gain by holding onto Honor. But the capital infusion it would gain from selling the brand would help it maintain operations as it explores other industries.
Huawei may eventually get off the Entity List like its fellow Chinese smartphone maker ZTE did in 2017. But if it collapses before that happens, it will not benefit from regaining access to American tech. For that reason, the conglomerate should give up Honor now to give the rest of its business a future.