Huawei in talks to sell parts of its Honor smartphone business
Huawei Technologies Co Ltd is in talks with Digital China Group Co Ltd and other suitors to sell parts of its Honor smartphone unit in a deal that could fetch up to 25 billion yuan ($3.7 billion), people with knowledge of the matter said.
Embattled Huawei is resetting its priorities due to U.S.
sanctions and will focus on its higher-end Huawei phones rather than the Honor
brand which is aimed at young people and the budget conscious, they said.
The assets to be sold have yet to be finalised but could
include Honor’s brand, research & development capabilities and related
supply chain management business, two of the people said.
The deal may be an all-cash sale and could end up smaller,
worth somewhere between 15 billion yuan and 25 billion yuan, one of the people
said.
Digital China, the main distributor for Honor phones, has
emerged as the frontrunner but other prospective buyers include Chinese
electronics maker TCL and rival smartphone maker Xiaomi Corp, the people said,
declining to be identified as the talks were confidential.
Huawei, the world’s biggest telecoms equipment vendor and
No.2 smartphone maker, declined to comment as did TCL. Digital China and Xiaomi
did not respond to requests for comment.
The Honor brand was established by Huawei in 2013 but the
business mostly operates independently from its parent.
‘A WIN-WIN SITUATION’
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 is independent from Huawei, its purchase of
components will no longer be subject to the U.S. ban on Huawei. This will help
Honor’s smartphone business and the suppliers,” he wrote in a research note
last week.
The U.S. government last year moved to prevent most U.S.
companies from conducting business with Huawei, saying the tech giant was
ultimately answerable to the Chinese government. Huawei has repeatedly denied
being a national security risk.
In May, Washington announced new rules aimed at constricting
Huawei’s ability to procure crucial chips that it designs for 5G networking
gear and smartphones.
The Honor brand, which sells its phones online through its
own sites and via third-party retailers, competes with Xiaomi, Oppo and Vivo in
the market for lower-end phones in China. Its phones are also sold in Southeast
Asia and Europe.
Honor brand smartphones accounted for 14.6 million, or 26%
of the 55.8 million smartphones Huawei shipped in the second quarter of this
year, according to estimates from research firm Canalys.
But margins for lower-end phones can be razor thin, and
Honor booked less than 5 billion yuan in net profit on revenue of about 70-80
billion yuan last year, said one of the people.
If successful in its bid, Digital China, which also partners
with Huawei in cloud computing and other businesses, plans to finance the bulk
of deal with bank loans and is set to secure the financing in the coming weeks,
the people said.
Shares in Digital China initially rose by their maximum
daily limit of 10% but later pared gains to stand 3% higher on Wednesday
afternoon, giving the Shenzhen-listed company a market value of around $2.9
billion.
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