Huawei has been battered by a long US campaign against the company. Now it is hunkering down for survival by selling off its budget smartphone business.
A consortium of buyers said on Tuesday that it has acquired Huawei’s Honor smartphone brand for an undisclosed amount of money. The buyers include more than 30 Chinese agents and dealers of the budget brand.
Huawei and the group of buyers said they struck the deal to help save Honor’s supply chain, and protect consumers and sellers. The Trump administration has cut off the Chinese company’s access to vital technology, such as chipsets and software for its smartphones and 5G telecommunications equipment. Washington says Huawei poses a national security threat, allegations the company has long denied.
Ditching Honor gives Huawei’s main smartphone brand more of a fighting chance
It is also a much needed reprieve for Huawei. Selling Honor means the embattled Shenzhen company can now free up resources to focus on its own brand of flagship smartphones, according to Nicole Peng, analyst at market research firm Canalys.
Huawei stockpiled inventory before the latest round of restrictions were announced earlier this year. Still, its rotating chief executive said at a conference in September that the company is in a “difficult situation” and “survival is the goal.”
“Survival means they need to make sure they have enough components to have business continuity for a longer period of time,” said Peng. Offloading Honor will give Huawei’s smartphone unit a bit of breathing room.
“It definitely will be much less burden on their shoulders,” said Peng. “They only have a limited supply of components. At least those can [now] be preserved for the higher end Huawei brand,” she added.
Huawei will not hold any shares or be involved in any business management or decision-making activities in the new Honor company, according to a company statement.
Which means “Honor should be able to source their own components … [and] sign their own contracts,” according to Peng.
It is possible that US sanctions on Huawei could ease once President-elect Joe Biden takes office. But there is no guarantee that a Biden administration will roll back restrictions on the Chinese tech firm.
Huawei’s “future and outlook is still very uncertain,” said Will Wong, analyst with market research firm IDC. “So they need to focus on what they have, and the best thing they have are the high-end models.”
The company’s flagship phones such as the P and Mate series sell for upwards of about 4,500 yuan ($683) and 6,400 yuan ($972), respectively. Honor phones are much cheaper — the latest 10X series starts at around 2,100 yuan ($319) and lower end Play phones sell for as little as 1,200 yuan ($183).
Focusing on the flagship devices will help Huawei “maintain their high-end brand image and also generate more revenue,” said Wong.
Losing Honor will hit Huawei’s global smartphone ranking
Without Honor, Huawei’s total smartphone sales will take a hit.
Earlier this year, the company achieved its long-time goal and briefly became the world’s top smartphone seller, helped by a slump in sales at rival Samsung.
The achievement would not have been possible without Honor. For nearly the last two years, the budget brand has accounted for between 25% and 29% of Huawei’s total smartphone shipments, according to data from IDC. Canalys, which uses a different method to calculate shipments, found that Honor accounted for 20% to 40% of Huawei’s total sales.
In the second quarter this year, the period when Huawei eked out a win over its South Korean rival, Honor made up more than a quarter of the company’s total smartphone sales, according to IDC and Canalys. Without the roughly 15 million Honor devices sold in the April-June quarter, Huawei would not have landed on top of the podium.