Huawei is reportedly closer to selling its Honor smartphone division to a consortium led by handset distributor Digital China. According to Reuters, the consortium also includes the Shenzhen government. The deal valued at $15 billion is a way for Honor to navigate the restrictions imposed by the US administration, which has led to a decline in sales worldwide.
The report notes that the consortium will buy Honor Terminal Co. Ltd., which was incorporated in April. The company is fully owned by Huawei and the deal could be announced as early as Sunday. Since Huawei was placed in the entity list by the US Department of Commerce last year, the Chinese company has struggled.
Why does Huawei want to sell Honor?
While Huawei’s network business has shown resilience despite the ban, the consumer division has plummeted in sales. According to Canalys, Huawei saw a 23 percent decline in smartphone shipments during the third quarter of this year. The change of ownership could help Honor gain access to Google Mobile Services and other critical resources.
Reuters reports that Digital China will become the top two shareholders of the sold off entity. It is said to buy nearly 15 percent stake in the new entity and will finance the deal with bank loans. Once finalized, the deal will see Digital China joined by at least three investment firms with each owning a 10 percent to 15 percent stake.
The deal notes that Honor will retain most of its management and 7,000-plus workforce. The consortium is reportedly planning to go public within three years. Honor was once seen as key to Huawei’s growth in emerging markets like India. The brand sells smartphones that compete with budget devices from Xiaomi, Realme, Samsung, Oppo and Vivo.
Huawei’s struggle to procure chips
However, a decision to sell Honor unit will demonstrate the difficulty faced by Huawei to navigate the current circumstances. The ban last year did not have any immediate impact on Huawei’s business but it is getting squeezed in the market. In May this year, the US administration restricted companies from supplying chips to Huawei.
Since most chip makers rely on US software technology, Huawei is unable to build its own chipsets for flagship P and Mate series. With the sale, Honor might get reprieve from the ban imposed by the US administration. The sale also indicates that Huawei does not see any changes in perception of its image by the new US administration.
Honor was established in 2013 and has operated as an independent unit. However, the ban on its parent company has impacted its own ability in the budget smartphone market. Analysts are not clear whether the sale would restore supply and collaboration with US companies for Honor. However, it is a sign that Huawei could have more struggles ahead.