Why China’s Top Smartphone Maker Huawei Would Sell Its Budget Honor Brand

Huawei would divest its budget-brand smartphone unit to ensure revenue from smartphones that’s otherwise squeezed by U.S. legal barriers, analysts say.

The Chinese company that was once briefly ranked as the world’s largest smartphone maker plans to shed its Honor business, according to media reports earlier this week. Huawei hopes a sale would protect Honor from U.S. restrictions in the short term, while giving the company a welcome burst of cash, experts say. Huawei’s billionaire founder and CEO, Ren Zhengfei, said last year that U.S. sanctions will cause company revenue to drop by billions of dollars.

“The hope is that once under new ownership, the Honor business will no longer be subject to the same U.S. export restrictions that have hobbled Huawei, and the big cash infusion will help fund ongoing operations at Huawei’s other business units,” says Mark Natkin, managing director at tech market research firm Marbridge Consulting in Beijing.

The U.S. Department of Commerce last year put Huawei on its entity list of companies that are barred from doing business with organization in the United States. An August 2020 order that took effect on September 15 added 38 Huawei affiliates to the list and restricts transactions where U.S. software or technology “is the basis for a foreign-produced item” used to build gear for the Chinese tech firm.

The Honor sale would “ring fence” the brand and its workforce against U.S. legal threats by separating it from “contentious Huawei networks,” says Neil Mawston, executive director of wireless practice with market research firm Strategy Analytics.

U.S. President-elect Joe Biden isn’t expected to cancel action against Huawei at the start of his term as he focuses on domestic issues, analysts say. But he might not make it harder for the Chinese firm. “Huawei is not confident of being delisted itself, but it is betting on Biden not going out of his way to target Honor,” says Ben Stanton, senior analyst with market research firm Canalys.

Huawei did not respond to a request for comment.

Honor was launched in 2013 as a budget brand to compete with Chinese rivals and sold throughout developing markets in Asia at an average price of $156. Honor can keep costs low and save money by selling most of its phones online.

In the most recent smartphone market share rankings, Huawei was ranked No. 2 in the world and No. 1 in China in the third quarter by IDC. In the previous quarter, Huawei was ranked as the world’s largest smartphone maker in the world for the first time.

U.S. policy could eventually target Honor on national security grounds, Natkin cautions. Selling off the budget phone unit would remove Honor from a “giant pool of Huawei R&D funds and retail expertise,” adds Mawston.

Huawei’s higher-end smartphones such as the P and Mate series will eventually languish if the company lacks access to American technology, Mawston notes. China could develop its own only by 2030, he forecasts.

“All Huawei smartphone models will decline or disappear without access to essential components made with American technology,” he says. “For now, in the 2020s, all Chinese smartphone makers will remain heavily dependent on American-led technology, such as 5G chipsets or mobile operating systems.”