Huawei Plans To Divest Honor And Bid Adieu To Budget Smartphones

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Just like a ship at sea is forced to jettison cargo to improve its stability during a storm, Huawei’s sale of Honor elicits a similar vision.

Shenzhen-based Chinese tech major Huawei, which began by selling telecommunications gear in the late 1980s, is reportedly close to selling its Honor business and exit the budget smartphone market.

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While the assets to be put up for sale have yet to be finalised, they could include Honor’s brand, R&D capabilities, and related supply chain management business.

With Honor managing to garner less than 5 billion yuan in net profit last year, Huawei is no longer keen on competing with other smartphone manufacturers in the budget smartphone segment. Huawei’s sub-brand Honor, which was launched in 2013, was a pocket-friendly option mainly targeted at value-conscious consumers. With the scraping margins in the budget phone market globally, the company wants to shift focus towards its higher-end offerings instead.

Huawei is reportedly engaged in negotiation with Digital China Group Co Ltd and other suitors to offload Honor.

The deal, if it goes through, is expected to net Huawei around 25 billion yuan ($3. 7 billion). Digital China, the main distributor for Honor phones, is currently touted to be the forerunner for bagging the deal, with prominent Chinese electronics maker TCL and another smartphone giant Xiaomi Corp are said to be in the mix.

Technical aspects aside, the US-China trade war has taken many casualties. The telecoms equipment vendor has also been beleaguered by the US’s sanctions against it. The company’s smartphone business has suffered adversely and crippled the in-house chipset division. Add to it the lack of Google support, it has become increasingly grinding for the firm to keep producing these budget phones.

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While all these details do paint an arduous picture ahead for the company, several analysts are of the view that the purported sale of the Honor smartphone business would in fact be in every parties’ best interest.

Kuo Ming-chi, an analyst at TF International Securities, has said that any sale by Huawei of the Honor smartphone business would be a “win-win situation for the Honor brand, its suppliers and China’s electronics industry.

If Honor, who operated independently from parent Huawei is cast off, its purchase of components will no longer be subject to the U.S. ban on Huawei. This will no doubt help in bolstering Honor’s smartphone business along with the suppliers.

Only last year, the US government moved to prevent most of the companies in the land from conducting business with Huawei, alleging that the tech giant was ultimately answerable to the Chinese government.  In the month of May, it again announced new rules, taking aim at Huawei’s ability to procure crucial chips that it designs for 5G networking gear and smartphones. The embattled Huawei has strenuously denied claims of being a national security risk, all in vain.

The Honor brand, which primarily sells its phones online through its own site and via third-party retailers, has successfully competed with Xiaomi, Oppo, and Vivo in the market for lower-end phones in China and India.

The success of Honor helped Huawei to grow leaps and bounds in a short span of time. It did not become the world’s biggest telecom equipment vendor and No.2 smartphone maker by mere luck. It has more than lived up to its billing, surpassing Samsung for the first time in global smartphone shipments in the second quarter.

Honor has always been a major asset for Huawei, generating revenue of more than US$10 billion in the past five years. With its models being sold elsewhere in Southeast Asia and Europe, it’s safe to say that its phones are certainly a catch among the users.

While there persist fears that even after divesting, it may become embroiled in the trade war later, only time will tell whether it was a shrewd move or merely a survival tactic to navigate through the troubled waters. With a change in administration looking increasingly likely, who knows what the future might hold for Huawei. Till then, tune here for more updates.

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